Financial Development and Remittance

The empirical analysis uses eight variables: financial development (FD), remittance inflows (REM), deposits (DEP), the nominal exchange rate (NER), terms of trade (TOT), the consumer price index (CPI), the lending rate (LR), and financial deepening (Fdeep). In addition to the variables in levels, the analysis includes their natural logarithmic transformations: lnFD, lnREM, lnDEP, lnNER, lnTOT, lnCPI, lnLR, and lnFdeep. The logarithmic transformation helps reduce differences in scale and allows estimated coefficients to be interpreted in proportional or elasticity terms where both the dependent and explanatory variables enter the model in logarithms. One methodological caution: lnLR is appropriate only if the lending-rate observations are strictly positive. The same requirement applies to all logged variables; a natural logarithm is not defined for zero or negative observations.