Agenda 2030, with its 17 Sustainable Development Goals (SDGs), serves as the framework for achieving the 17 Sustainable Development Goals (SDGs) to which all 193 United Nations (UN) member states have committed (United Nations, 2015). In contrast to previous development agendas that emphasized economic growth, the SDGs are a global framework that encompasses a diverse range of potentially conflicting policy objectives in the economic, social, and environmental realms, while also acknowledging that some objectives are highly compatible. The agenda's success is predicted by our ability to capitalize on these benefits and resolve existing trade-offs. To obtain insight into this vital subject, scholars are beginning to examine the relationships between the seventeen goals. (Breuer et al., 2019; Lu et al., 2015; Pradhan, 2019; Schmidt et al., 2015). Before the SDGs, prior research examined the connections between, among other things, adapting to global warming (SMITH & OLESEN, 2010); achieving the Millennium Development Goals (Lo Bue & Klasen, 2013); poverty reduction (Mathy & Blanchard, 2016), and adjusting economic growth, environmental protection, and social integration for personal well-being (Ibisch et al., 2016; Lo Bue & Klasen, 2013; Sachs, 2012). However, the SDGs have introduced a new degree of possibility for categorizing relationships, enabling future systematic examination of these concerns (Costanza et al., 2016; Nilsson et al., 2016; Rickels et al., 2016).
Consistent performance measurement of progress toward achieving the SDGs at various tiers, such as provincial, national, and state levels, over time can especially assist countries in identifying critical issues regarding their sustainable development progress and the gaps between that progress so that countries can better match their reform agenda toward achieving these ambitious SDGs (Schmidt-Traub et al., 2017; Xu et al., 2020). By 2016, assessments and analyses of SDGs at the regional and global levels have primarily included an assessment of progress toward achieving SDGs (Allen et al., 2017; Campagnolo et al., 2018; Clark et al., 2018; Jeffrey Sachs, 2018; Lior et al., 2018; Lozano et al., 2018; Mateusz et al., 2018; Nicolai et al., 2015; OECD, 2018; Prof. Charles M.A. Clark & Dr. Catherine Kavanagh, 2017). From this, it has been found that some countries and regions are on track while others are lagging. Similarly, some sustainable development goals are on track while others are not.
One such area of SDG is financial development, and it is addressed in SDG 8, specifically SDG 8.10, "Strengthen the domestic financial institutions' capability." Given the vital role financial institutions play in influencing a country's economic progress, A well-developed and efficient financial sector ensures long-term economic growth (Demirguc-Kunt et al., 2003) and contributes to capital accumulation (Al-Fayoumi & Abuzayed, 2014). Moreover, a thriving financial sector makes risk management easier by minimizing an economy's sensitivity to financial shocks. Considering the critical role of financial development, current studies have concentrated on the variables that contribute to developing nations' lack of financial development compared to affluent countries (Baltagi et al., 2009).
At the same time, in emerging nations, when the financial system evolves, it provides many benefits to the economy, while at the same time, it also highlights the importance of those factors that contribute to financial development. Several factors can influence financial prosperity. Of these, remittance inflows are one of them, and researchers in the past have highlighted that remittance can affect an economy in many ways, as it can lead to a skills shortage in the home country (Bollard et al., 2011; Faini, 2007), can affect the human resources and supply of labor (S. S. Azizi, 2018; Lopez et al., 2007; Mckenzie & Sasin, 2007), can affect poverty and injustice (Adams & Page, 2005; Barham & Boucher, 1998), can impact human resources and supply of labor (S. S. Azizi, 2018; Lopez et al., 2007; Mckenzie & Sasin, 2007).
One such emerging region that receives one of the highest remittances in the world is South Asia. As per World Bank estimates, the expatriate worker’s remittances has increased from 10 billion USD in the year 1975 to 646 billion USD by the end of the year 2020, while during the same time the remittance to South Asia has increased from 438 million USD to 147 billion (World Bank, 2021). By the end of the year 2020 the remittance to South Asia stand at a level of 22.7% out of total global remittance, while in the year 1975, South Asia’s share in total global remittance was only 4.30% (See Table-1). With such rapid growth, South Asia has established itself as a strategic region in terms of remittance inflows.
Insert Table-1 here (South Asia Remittance Growth)
Even though remittance inflows have grown manifold in the past decade for the South Asian region, The authors have previously stated that it is unclear whether and how remittances contribute to financial development (Aggarwal et al., 2011).On the one hand, recipients of remittances may require financial solutions that enable the safekeeping of these funds, even if the majority of these payments are not transferred through banks. Families who receive their remittances through banks have a significantly higher proclivity to educate themselves about and seek out more bank products. Simultaneously, offering remittance transfer services enables banks to connect with recipients who have little financial intermediation. Nevertheless, on the other hand, since remittances can help individuals overcome funding constraints, they may result in decreased demand for credit and have a dampening influence on the development of credit markets. Numerous scholars have researched the effect of remittances on financial development over the last few years and come to widely varied conclusions. However, for the South Asian region, remittance inflows flow in parallel to domestic credit to the private sector by banks, as illustrated in Fig. 1. This demonstrates that remittance inflows have a direct impact on the region's financial development; as each time remitted inflows increase, financial development improves.
Insert Figure-1 here (Domestic Credit & Remittance Inflow Growth)
In addition to remittances, other macroeconomic factors such as inflation, GDP growth, and trade openness all contribute significantly to financial development, particularly in emerging economies (SeyedSoroosh Azizi, 2020). In Table 2 mentioned below, it highlights the data from World Bank data for the period 1975–2020 (World Bank, 2021c), in which it can be noticed that the correlation between GDP growth, trade openness, and remittance has a positive relationship with financial development, while inflation has an inverse relationship with financial development, which means these factors play a very important role in the financial development of South Asia.
Insert Table-2 here (Correlation Matrix)
Finally, South Asia used to be known around the world for its simmering internal turmoil, high poverty rates, low income, bad economic performance, and negative social features. Nonetheless, the region's outlook has drastically changed. Expectations of an economic comeback in South Asia are getting back to normal as growth is anticipated to climb by 7.2% and 4.4% in the years 2021 and 2022, respectively (world bank, 2021b). With a population of 1.96 billion people, South Asia is home to approximately 26.16% of the world's population (world population review, 2021). While the Indian economy outperforms the rest of the area, Bangladesh and Pakistan are also thriving (Ahmed, 2006). To attain the goal of sustainable development, we should assess the region's financial development in connection to remittance inflows, given its geography, population, and impact on the global economy. As a result, the research question is as follows:
Does remittance inflow affect the financial development of South Asia?
There are five sections in this research study. The second section contains a thorough overview of the literature. Section 3 discusses data and technique, whereas Section 4 discusses empirical findings. In the last section, there is a summary and a conclusion.