This working paper by Paola Giuliano and Marta Ruiz-Arranz examines the relationship between remittances, financial development, and economic growth in developing countries. The authors use a newly constructed dataset covering a large sample of developing countries to analyze how remittances can substitute for financial development and promote growth. They find that remittances can positively impact growth in less financially developed countries, controlling for endogeneity using a Generalized Method of Moments (GMM) approach. The study also explores the cyclical behavior of remittances and their association with financial system depth. The empirical analysis suggests that remittances help alleviate liquidity constraints and channel resources towards productive investments, thereby promoting economic growth. The results are robust to various sensitivity tests and threshold estimations, indicating that remittances have a significant positive impact on growth and investment, especially in countries with shallower financial systems.This working paper by Paola Giuliano and Marta Ruiz-Arranz examines the relationship between remittances, financial development, and economic growth in developing countries. The authors use a newly constructed dataset covering a large sample of developing countries to analyze how remittances can substitute for financial development and promote growth. They find that remittances can positively impact growth in less financially developed countries, controlling for endogeneity using a Generalized Method of Moments (GMM) approach. The study also explores the cyclical behavior of remittances and their association with financial system depth. The empirical analysis suggests that remittances help alleviate liquidity constraints and channel resources towards productive investments, thereby promoting economic growth. The results are robust to various sensitivity tests and threshold estimations, indicating that remittances have a significant positive impact on growth and investment, especially in countries with shallower financial systems.