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This study examines the short-run and long-run relationships between remittances and economic growth in Zimbabwe from 1980 to 2022, using the autoregressive distributed lag (ARDL) bounds testing approach. To ensure the reliability, validity, and stability of the data, the study used the Jacque-Bera normality test, Breusch Godfrey serial LM test, and Bruesch-Pagan-Godfrey heteroskedasticity test together with a cumulative sum of recursive residuals and cumulative sum of recursive squares. The dependent variable in this study is domestic credit to the private sector as a percentage of GDP, and the independent personal remittances as a percentage of GDP, with the control variables per capita GDP growth, inflation, and gross fixed capital formation. The theoretical framework explores key perspectives, including the remittance-development optimist view, which posits that remittances can drive investment and economic progress; the supply-leading hypothesis, suggesting financial development as a precursor to economic growth; and the growth-led hypothesis, which sees economic development as a catalyst for financial development. The results from the ARDL test show no evidence of co-integration in the long run; however, in the short run, a significant positive effect on financial development is observed. This finding supported the complementarity theory and showed how remittances stimulate demand for financial services. Particularly problematic was the negative and statistically significant effect of inflation on financial development, which can potentially harm the performance of financial markets and slow down financial activities. The study suggests implementing targeted policies to limit parallel market activities and direct resources towards the formal sector.

This paper explores the inter-connectedness of remittances and financial development and how their associated covariates such as savings, investment, money supply and economic growth are impacted by this relationship. The study employs a panel vector autoregression (P-VAR) estimation technique, and the generalized methods of moments (GMM) are applied after removing fixed effects and lagged regressors are used as instruments to have consistent estimators. The main findings of the study demonstrate that (i) remittances and financial development have a feedback interrelationship, and some interlinkages are identified amongst their covariates, (ii) economic growth has a dual connection with financial development and that (iii) savings, investment, and broad money supply influence both financial development and remittances. These findings contribute to current discussions in the literature as they support the importance of deepening financial markets in SSA, and attracting more remittances. The significant role played by the diaspora in improving domestic financial depth is confirmed. Progression in SSA economic growth helps to stimulate those in the diaspora to repatriate most of their earnings back home.