REMITTANCES AND FINANCIAL DEVELOPMENT.A study of the South-Eastern and Eastern-European countries.

Remittances were calculated to be approximately $318 billion in 2007, which is an increase of three times the amount of $102 billion in 1995, having these funds to become the second largest type of flows after foreign direct investment. The South-Eastern and Eastern-European countries welcomed 12% of the world’s remittances inflows in 2007, totalling $37 billion. The impact of remittances on financial development of the South-Eastern and Eastern-European countries for the period 1994 – 2007 is studied and it is examined whether these funds contribute to increasing the aggregate level of deposits and credits intermediated by the local banking sector. Financial development is measured in two ways, either as bank deposits or as bank credits to private investors. In order to analyze this effect panel data analysis is performed. Fixed effect regressions are performed to test for the effect of remittances on bank deposits and bank credits to private investors. The findings indicate that remittances have a robust positive effect on promoting financial development in South-Eastern and Eastern-European countries. It is observed that the effect on bank deposits is less robust than the effect on bank credits to private investors