Do international paid remittances hinder the financial development of GCC host countries?

Abstract

PurposeThe present study aims to compare the effect of international paid remittances on financial development in three Gulf Cooperation Council (GCC) countries from 1985 to 2020.Design/methodology/approachThe study applied the bound cointegration technique and the autoregressive distributed lag (ARDL) method for long- and short-run estimations as well as diagnostic tests to increase robustness.FindingsThe ARDL long-run results showed that international paid remittances had a significant negative effect on financial development in Oman and Saudi Arabia but an insignificant negative effect in Bahrain. The error correction model for the short run of the ARDL slowdown model showed that international paid remittances had a significant positive effect on financial development in Oman, Bahrain, and Saudi Arabia.Originality/valueFew studies have examined remittance outflows from GCC countries, which are enriched by oil wealth and located in one of the most stable geographical areas in the world. The findings from this study can help policymakers understand how to enable remittances and investments in order to establish regulations that will preserve remittance inflows and meet target services.