| Title : | Effects of remittances on economic growth and financial sector development in Nepal | | Material Type: | printed text | | Authors: | Jyoti Kafle, Author | | Publication Date: | 2014 | | Pagination: | 96p. | | Size: | GRP/Thesis | | Accompanying material: | 2/B | | General note: | Including bibilography | | Languages : | English | | Descriptors: | Banks
Banks and banking
Commercial banks
Economic development
Economic growth
Nepal
| | Keywords: | 'economic growth commercial bank bank bank and banking economic development nepal' | | Class number: | 338.9 | | Abstract: | Remittances are the major sources of foreign exchange earnings and important implications for the remittance-recipient countries because of their increasing volume. Inflow of remittance, being a prime source of foreign currency and thereby a contribution to the national economy plays a significant role in the context of the developing nations. Since 2000, remittance inflow has been rising by an average rate of 16% per annum in the developing countries (World Bank, 2006). In recent years Nepalese economy has been named “remittance economy” as remittance constitutes almost 23% of GDP of the country (Economic Survey, 2012). Since remittance has brought macroeconomic stability by securing large chunk of foreign reserve of the country and provided income source for the households, identification of effects of remittances in economic development and financial sector in Nepal is crucial. Another critical issue with remittance in Nepal is whether growing contributions from remittance income to Nepal’s national and household economies will be sustainable. The major objective of this study is to investigate the causal relationship between foreign remittances, banking sector development and GDP for Nepal.
The review of literature has shown relationship between various factors such as money supply to GDP (M2/GDP), sum of demand, time, saving and foreign currency deposits to GDP (DEP/GDP), private sector divided by GDP (LOAN/GDP), credit provided by the banking sector to GDP (CREDIT/GDP), Capital Formation, of Openness (proxy by imports and exports to GDP), Remittance Inflows, etc. in the case of many countries.
In addition, some of the study found that remittances and banking sector development influence per capita income. It also showed that Banking sector development, as measured by the private sector credit disbursement by the banking system, is significantly affected by both remittance flow and GDP. Whereas some found that there is a long-run equilibrium relationship between GDP and remittance inflows, exchange rate, foreign direct investment, openness and capital formation. Based on the literature reviews, this study has proposed the conceptual framework indentifying remittances inflow, Gross capital formation, total trade, total deposits and other variables as the most important factors that determine the economic growth and financial sector development in the context of Nepal.
This study is based on primary as well as secondary data. This study has been used time series data to analyze the relationship between remittances and its determinants. For the purpose of study required data of dependent variables (GDP per capita, broad money supply, private sector credit, and total consumption) and independent variables (gross capital formation and its lag, total trade and its lag, foreign aid and its lag, total deposit and its lag, and also lag of all independent variables) are collected from various secondary sources for the period of 1993 to 2012.Primary survey questionnaire is conducted in order to assess the opinion of remittance receiver regarding the uses of remittances and its effect. The questionnaires used for the primary survey contain the general, yes no, tick mark, ranking, five point Likert scale and open end questions designed to assess the effects of remittances in economic growth and financial sector. Likewise, multiple regression analysis and correlation analysis are used to examine the effects of remittances on economic growth and financial sector development.
The study reveals that foreign aid and lag of GDP per capita have significant impact on GDP per capita in Nepal. Further it find out that remittance and GDP per capita are positively related but p-value shows that it is insignificant which meant that even thought they are positively related but result shows that remittance have no impact in GDP per capita. Further this study finds out that total remittance inflows are positively related with broad money supply but lag of total remittance inflows have more significant impact on broad money supply compared to total remittances inflow of current year. This study also find out that total remittance inflows as well as lagged total remittance inflows does not have any effect on private sector credit this result is contradict to the result of survey result and total remittance inflows as well as lagged total remittance inflows also does not have any effect on total consumption this result is also contradict with the findings of survey result. Remittance per capita, Gross capital formation , total trade, lag of remittance per capita ,Gross capital formation , total trade and foreign aid does not affects the GDP per capita in Nepal. The correlation analysis of Broad money supply and its determinants are positively related with Broad money supply. The correlation analysis of private sector credit and its determinants showed that the total remittances inflow and lag of total remittances inflow are positively related with private sector credit.
Based on the primary survey results, most of the respondents (97.6%) reveal that they have maintained bank account in Bank and Financial institutions. The respondent who have maintained bank account, among them most of them have maintained saving account. Likewise, the primary survey results indicate that on average majority (72%) of the respondent use official method of transaction and remaining 28% of the respondent use unofficial method of transaction. The results also indicate that the most important factor to the recipient of remittance is the Safety of remitted funds and speed to receive their money. Further it is found that remitted funds are mostly used for consumption purpose, followed by investment in different sectors, saving and lending of remitted funds. Some of the other findings of the survey are: People use unofficial method of transaction because they find it difficult to use official method, when the household started receiving remittances periodically, they will desire to store the funds safely in banks or other financial institutions. Likewise the propensity to demand other Financial Products rises with the rise in remittances. The remittance also helps to increase the cash flow in the country and the remitted money is also used in lending purpose for interest income by individual and family.
Thus, remittance inflows to Nepalese economy have positive effects on macro-economic variables and growth of country. A positive social impact can also be seen. So, the benefits associated with remittance inflows have multiplier effects driving the whole economy towards growth as remittance fuels up growth for other sectors like banking and investment, education, healthcare, construction, etc. However, still there are various cons associated with remittance economy.
The recommendation put forward by this study is that to bring recipient households into the formal financial sector is only the first step in using remittances more effectively and the banker must have to pay attractive interest rate and offer attractive scheme so, that they can receive deposit and invest in big project. The study remains enough ground for future researcher in the same topic. The future studies can be carried out by conducting research between remittances and economic growth or between remittances and financial sector development. Similarly future research can be done on effects of remittances on commercial and development banks only. Further studies are suggested to extend the survey of at least one district or development region.
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Effects of remittances on economic growth and financial sector development in Nepal [printed text] / Jyoti Kafle, Author . - 2014 . - 96p. ; GRP/Thesis + 2/B. Including bibilography Languages : English | Descriptors: | Banks
Banks and banking
Commercial banks
Economic development
Economic growth
Nepal
| | Keywords: | 'economic growth commercial bank bank bank and banking economic development nepal' | | Class number: | 338.9 | | Abstract: | Remittances are the major sources of foreign exchange earnings and important implications for the remittance-recipient countries because of their increasing volume. Inflow of remittance, being a prime source of foreign currency and thereby a contribution to the national economy plays a significant role in the context of the developing nations. Since 2000, remittance inflow has been rising by an average rate of 16% per annum in the developing countries (World Bank, 2006). In recent years Nepalese economy has been named “remittance economy” as remittance constitutes almost 23% of GDP of the country (Economic Survey, 2012). Since remittance has brought macroeconomic stability by securing large chunk of foreign reserve of the country and provided income source for the households, identification of effects of remittances in economic development and financial sector in Nepal is crucial. Another critical issue with remittance in Nepal is whether growing contributions from remittance income to Nepal’s national and household economies will be sustainable. The major objective of this study is to investigate the causal relationship between foreign remittances, banking sector development and GDP for Nepal.
The review of literature has shown relationship between various factors such as money supply to GDP (M2/GDP), sum of demand, time, saving and foreign currency deposits to GDP (DEP/GDP), private sector divided by GDP (LOAN/GDP), credit provided by the banking sector to GDP (CREDIT/GDP), Capital Formation, of Openness (proxy by imports and exports to GDP), Remittance Inflows, etc. in the case of many countries.
In addition, some of the study found that remittances and banking sector development influence per capita income. It also showed that Banking sector development, as measured by the private sector credit disbursement by the banking system, is significantly affected by both remittance flow and GDP. Whereas some found that there is a long-run equilibrium relationship between GDP and remittance inflows, exchange rate, foreign direct investment, openness and capital formation. Based on the literature reviews, this study has proposed the conceptual framework indentifying remittances inflow, Gross capital formation, total trade, total deposits and other variables as the most important factors that determine the economic growth and financial sector development in the context of Nepal.
This study is based on primary as well as secondary data. This study has been used time series data to analyze the relationship between remittances and its determinants. For the purpose of study required data of dependent variables (GDP per capita, broad money supply, private sector credit, and total consumption) and independent variables (gross capital formation and its lag, total trade and its lag, foreign aid and its lag, total deposit and its lag, and also lag of all independent variables) are collected from various secondary sources for the period of 1993 to 2012.Primary survey questionnaire is conducted in order to assess the opinion of remittance receiver regarding the uses of remittances and its effect. The questionnaires used for the primary survey contain the general, yes no, tick mark, ranking, five point Likert scale and open end questions designed to assess the effects of remittances in economic growth and financial sector. Likewise, multiple regression analysis and correlation analysis are used to examine the effects of remittances on economic growth and financial sector development.
The study reveals that foreign aid and lag of GDP per capita have significant impact on GDP per capita in Nepal. Further it find out that remittance and GDP per capita are positively related but p-value shows that it is insignificant which meant that even thought they are positively related but result shows that remittance have no impact in GDP per capita. Further this study finds out that total remittance inflows are positively related with broad money supply but lag of total remittance inflows have more significant impact on broad money supply compared to total remittances inflow of current year. This study also find out that total remittance inflows as well as lagged total remittance inflows does not have any effect on private sector credit this result is contradict to the result of survey result and total remittance inflows as well as lagged total remittance inflows also does not have any effect on total consumption this result is also contradict with the findings of survey result. Remittance per capita, Gross capital formation , total trade, lag of remittance per capita ,Gross capital formation , total trade and foreign aid does not affects the GDP per capita in Nepal. The correlation analysis of Broad money supply and its determinants are positively related with Broad money supply. The correlation analysis of private sector credit and its determinants showed that the total remittances inflow and lag of total remittances inflow are positively related with private sector credit.
Based on the primary survey results, most of the respondents (97.6%) reveal that they have maintained bank account in Bank and Financial institutions. The respondent who have maintained bank account, among them most of them have maintained saving account. Likewise, the primary survey results indicate that on average majority (72%) of the respondent use official method of transaction and remaining 28% of the respondent use unofficial method of transaction. The results also indicate that the most important factor to the recipient of remittance is the Safety of remitted funds and speed to receive their money. Further it is found that remitted funds are mostly used for consumption purpose, followed by investment in different sectors, saving and lending of remitted funds. Some of the other findings of the survey are: People use unofficial method of transaction because they find it difficult to use official method, when the household started receiving remittances periodically, they will desire to store the funds safely in banks or other financial institutions. Likewise the propensity to demand other Financial Products rises with the rise in remittances. The remittance also helps to increase the cash flow in the country and the remitted money is also used in lending purpose for interest income by individual and family.
Thus, remittance inflows to Nepalese economy have positive effects on macro-economic variables and growth of country. A positive social impact can also be seen. So, the benefits associated with remittance inflows have multiplier effects driving the whole economy towards growth as remittance fuels up growth for other sectors like banking and investment, education, healthcare, construction, etc. However, still there are various cons associated with remittance economy.
The recommendation put forward by this study is that to bring recipient households into the formal financial sector is only the first step in using remittances more effectively and the banker must have to pay attractive interest rate and offer attractive scheme so, that they can receive deposit and invest in big project. The study remains enough ground for future researcher in the same topic. The future studies can be carried out by conducting research between remittances and economic growth or between remittances and financial sector development. Similarly future research can be done on effects of remittances on commercial and development banks only. Further studies are suggested to extend the survey of at least one district or development region.
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