Does Digital Banking Promote Remittance Receipts? Evidence From Developing Countries

ABSTRACT In the realm of technological advancement, like many sectors, the financial sector swiftly embraced digital transformation to help facilitate financial transactions, especially remittance receipts. The digitalisation of the banking sector has made transfers and access to funds quite easier, faster, and more economical by reducing transaction costs. This paper examines the impact of digital banking on remittance flows using the World Bank's Global Findex (2014, 2017, and 2021) surveys and panel macroeconomic data for 53 developing countries. Applying the panel corrected standard errors and instrumental variable two‐stage least square (IV‐2SLS) estimation techniques, the findings suggest a non‐linear (inverted U‐shaped) relationship between digital banking and remittances, that is these private (external financial) flows initially increase at low levels of digital banking while at the higher level of digitalisation, remittances start decreasing. Controlling the heterogeneity and endogeneity, in addition, the results suggest that exchange rate depreciation (of the home country's currency) increases remittance inflows. Moreover, remittance receipts increase with (the development of) human capital and (per capita) income of developing countries.