Asymmetric Impact of Remittances on Financial Development: A NARDL Approach for the Philippines

The relationship between remittances and financial development continues to be a focus for economists and policymakers. This study builds upon previous research to explore the possibility that the relationship between remittances and financial development might be asymmetric. Notably, remittances accounted for 8.9% of the Philippines’ GDP in 2023 (World Bank, 2024a), ranking it as the 4th highest recipient of remittances globally. Consequently, this study examines the effect of remittances on the financial development of the Philippines based on an asymmetrical approach, and using the Nonlinear Autoregressive Distributed Lag (NARDL) model, with the data spanning from 1981 to 2023. The evidence of the studies displays that the impact of remittances on financial development exhibited a nonlinear relationship. The short-run estimations corroborate the long-run findings that a negative shock to remittances has a more pronounced dampening effect on financial development compared to the enhancing effect of a positive shock. The empirical results from the asymmetrical method provide more comprehensive insights, suggesting that Philippine authorities should develop essential policies to mitigate the impact of unfavorable remittance shocks.