Abstract
This study investigates the interaction between remittances and financial development in promoting economic growth in MENA and ASEAN middle-income economies during 2000–2021. The purpose of the research is to better understand whether remittances complement or substitute domestic financial systems in these regions, where migrant inflows and structural financial constraints coexist. The Seemingly Unrelated Regression (SUR) approach is employed to account for cross-country error correlations and shared macroeconomic shocks. According to our findings, there is a substitute relationship between remittances and financial development in terms of fostering economic growth, implying that local financial sectors make inefficient use of remittances, as investors seek external financial resources when their financial sectors are dysfunctional. Furthermore, the global economic shocks have had a significant negative impact on economic growth, as has the trade deficit. In addition, robustness tests incorporating additional major remittance-receiving countries Bangladesh, China, India, Mexico, and Pakistan confirm the consistency and stability of the findings. The implications of these results highlight the need for policymakers to strengthen financial institutions, enhance financial inclusion, and improve the efficiency of domestic credit markets so that remittances can shift from acting as short-term substitutes for financial development toward serving as long-term complements that support more sustainable economic growth.