The Effect of Remittances on Economic Growth in Kyrgyzstan and Macedonia: Accounting for Financial Development

Kyrgyzstan and Macedonia have experienced a reasonable increase in remittances over the last twenty-five years. Subsequently, the extent to which remittances can be instrumental for economic development of the two countries has gained serious attention in recent development dialogues. The aim of this study is to examine the impact of remittances versus financial development on the economic growth of the two counties, complementing the burgeoning interest and focus on remittances for policy. The short-run and the long-run effects and the causality dynamics of remittances and financial development, are explored. The results show a long-run positive impact of remittances on the economic growth of these countries. The impact of financial development is negative, significant only for Kyrgyzstan and not statistically significant for Macedonia. The causality results show that remittances support economic growth for Kyrgyzstan, whereas economic growth appears to propel remittances for Macedonia.