Abstract
This study examined the relationship between banking sector development and personal remittances in Zambia using the vector error correction model (VECM) approach with annual time series secondary data ranging from 1980 to 2014. Literature has found out that the relationship between financial sector development and remittances is fourfold: (1) financial sector development influences remittances inflow into the receiving country, (2) remittances positively influences financial sector development, (3) there is a feedback relationship between financial sector development and remittances inflow and (4) there is no or negligible relationship between the two variables. The study found out that there existed a long run causality relationship running from either banking sector development towards personal remittances or from personal remittances towards banking sector development in Zambia during the period under study. The short run causality from either side to another could not be confirmed in this study. It is against this background that the current study encourages Zambian authorities to stimulate banking sector development in order to increase personal remittances inflow. They should also design sustainable remittances harnessing policies as that will go a long way in as far as promoting banking sector development is concerned.
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