The Impact of Digitalization on International Remittances in Developing Economies: The Paradox of Institutional Development

Digital technology significantly transforms economies by reducing transaction costs and promoting economic growth. Similarly, international remittances decrease poverty and improve employment. This article investigates whether digitalization increases international remittances in developing economies and how institutional development affects the nexus between digitalization and international remittances. The study employs internet users and fixed broadband subscriptions as proxies for digitalization and the difference generalized method of moments estimators to test the role of governance in the digitalization-international remittances nexus across 102 developing economies. The findings are counter-intuitive. First, digitalization and governance increase international remittances. Second, as a proxy for digitalization, the interaction term with internet users decreases international remittances, while the interaction term with fixed broadband subscriptions promotes them. Finally, trade openness, economic growth, and inflation are determinants of international remittances. From these findings, the article makes arguments to show the paradox of institutional development in developing economies and some policy lessons to improve institutional quality in promoting digital technology and attracting more international remittances. JEL Classification C23, G21, O47