The Remittance Inflows’ Impact on Savings in the Serbian Economy

Remittance inflows represent one of the most significant sources of foreign funding for most developing countries. These funds have also proven to be one of the most stable sources of external financing for developing countries during the past few decades and in the period of the last global crisis. They are much less responsive to economic cycles and economic shocks than foreign direct investments and other private and official capital flows. The benefits that a developing country can have from stable cash inflows are various as far as they are directed in activities that contribute to economic growth and development. Theoretically, channeling remittances into savings and investments can lead to long-term economic growth. Formal transfer of remittances through the banking system and financial markets can lead to stronger financial stability and development of new financial instruments. Since remittances reduce the volatility of GDP and may contribute to financial system development they are able to additionally boost country's growth and development. Finally, these resources significantly contribute to the fight against poverty and inequality. Taking into account all the positive impacts the remittances may have in developing countries, the goal of this paper is to investigate in further detail the relationship between remittances and savings in Serbian economy. With this analysis, we aim to test whether there is a potential for remittance inflows channeling not only in consumption, but also in various investment alternatives that could provide long-term benefits to the local economy.