REMITTANCE SHOCK TRANSMISSION THROUGH BANKING NETWORKS: A PANEL SVAR WITH SPATIAL INTERACTIONS

Abstract

This study analyzes how instability in cross-border money funds is able to affect the functioning of local banking systems due to various economic and political concerns. The world's increasing population migration patterns have forced many families to rely on the new money sent by their migrant workers through remittances. The economic effects of remittance shocks, including the methods through banks have not received adequate exploration. This research seeks to explore the effects of remittances on the economies of countries by considering its direct and indirect impacts through the use of Spatial Vector Autoregressive (SVAR) models to determine cause and effect relationships among related geographic areas. We're using data from over 50 countries from the past 20 years and several standard approaches commonly used in economics and finance to determine the relationships between one event and another. The study suggests that a sudden unexpected halt in money sent to family can affect financial stability either right away <linebreak> or intensely in other parts of society <linebreak> increasingly in regions outside the countries of origin. This study is valuable because it shows us how remittances flow through banking systems. It helps us create a more globalized economy and find opportunities and fix downfalls in the system.

Keywords: Remittance shocks, banking networks, Spatial Vector Autoregressive model, spatial interactions, cross-border money flows, financial stability, panel data analysis.