The Empirical Economics Letters, 10(5): (May 2011) ISSN 1681 8997 Do Remittances Matter for Financial Development in the MENA Region? Panel Cointegration and Causality Analysis Huseyin Agir Department of Economics, K.Maras Sutcu Imam University K.Maras, Turkey Email: huseyinagir@ksu.edu.tr Muhsin Kar Department of Economics, Cukurova University, Adana, Turkey Email: mkar@cu.edu.tr Saban Nazlioglu Department of Econometrics, Pamukkale University, Denizli, Turkey Email: snazlioglu@pau.edu.tr Abstract: This paper investigates the impacts of remittances on financial development in the MENA region by utilizing the panel cointegration and causality methods and finds out that while the remittances and economic growth cause financial development in both the short- and long-run, financial development and economic growth induce the worker’s remittances to the home country in the long-run. Keywords: Financial Development, Remittances, Panel Cointegration, Causality, MENA JEL Classification Number: F24, F41, E44, C33 1. Introduction Volume of remittance flows by migrant workers from the host countries into the home countries has rapidly risen over the years (Brown, 2006; World Bank 2006) and this sort of private transfers has became one of the important resources for economic development (Chami et al., 2008). Recently, both theoretical and empirical literatures on this subject have mainly concentrated on whether macroeconomic variables and conditions in both the home and the host country determine magnitude of remittances (El-Sakka and McNabb, 1999; Sayan, 2004; Vargas-Silva and Huang, 2006). In addition, the impacts of remittances on the receiving economies are investigated through three channels. Remittances might alleviate poverty by increasing the recipient family’s income and living standards (Adams and Page, 2005; Gupta et.al., 2009, Rao and Hassan, 2010), increase the growth rate by