Remittances and Financial Development:;Substitutes or Complements in Economic Growth?

In a recent study, Chami et al. (2003) suggested that remittances can have a negative impact on;economic growth of the receiving country by diminishing the work effort of the migrants' relatives.;Subsequently, Giuliano and Ruiz-Arranz (2009) found that this moral hazard effect emerges only;when financial development is low. In this paper, we introduce a new indicator of financial;development measuring the efficiency domestic banking system and show that the impact of;remittances on economic growth is negative (positive) in countries where bank efficiency is low;(high). This complementarity result is robust to controls for other financial development and;institutional quality indicators.