The relationship between remittances from workers abroad and financial development and economic growth in Egypt during the period (1975-2012) “An econometric study”

The aim of the research is to analyze the quantitative relationships
between: remittances, financial development and economic growth in Egypt. In
addition, the research aims to determine the direction of the causal relationships
between these three variables. To achieve these aims, the relationship between
the variables in the economic literature in general and especially in the Egyptian
economy is explained over the period of the study. Then, a model of Johansson
co-integration and the VECM are used to measure the relations between the
variables in the long run and short run simultaneously. Finally, the direction of
causal relationships in both the short and long run is identified using the Granger
causality based on the results of the VECM model.
The research shows that there is a high rate of development in the three
variables in Egypt over the study period. Egypt ranked the sixth country
worldwide in receiving remittances and the first the Middle East and North
African countries. The Egyptian economy has witnessed a significant rise in the
level of financial development, especially after the application of the economic
reform program. However, the rate of economic growth was modest and
unstable, and it decreased at the end of the study period.
The results of the long-run estimation indicate that there is a positive
relationship between economic growth and remittances, running in both
directions however the impact of economic growth on remittance is greater than
the effect of remittance on economic growth. Moreover, the relationship between
remittances and financial development is positive; however, the effect of
financial development on remittance is stronger than the effect of remittance on
financial development. Finally, the relationship between economic growth and
financial development is negative.
The causal relationships in the long-run show a bidirectional relationship < br /> between the three variables; economic growth causes both remittances and
financial development, the remittances cause both growth and financial
development, and finally financial development causes both remittances and
growth. The short-run causal relationships agree with the long-run results.
Therefore, the government should use the appropriate policies and incentives to
increase remittances and control them through the banking system, thereby
contributing to the financial development. In addition, it is recommended to
direct these remittances to the investment activities to affect the rate of economic
growth positively