Impact of Remittanceson Poverty and Financial Development in Sub-Saharan Africa

Abstract

This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. This paper assesses the impact of the steadily growing remittance flows to sub-Saharan Africa (SSA). Though the region receives only a small portion of the total recorded remittances to developing countries, and the volume of aid flows to SSA swamps remittances, this paper finds that remittances, which are a stable, private transfer, have a direct poverty mitigating effect, and promote financial development. These findings hold even after factoring in the reverse causality between remittances, poverty and financial development. The paper posits that formalizing such flows can serve as an effective access point for "unbanked" individuals and households, and that the effective use of such flows can mitigate the costs of skilled out-migration in SSA.

Do Workers’ Remittances Promote Financial Development in Sub-Sahara Africa Countries?

“…However, the above study rely on the notion that the relationship between remittances and economic growth is direct despite Ramirez and Sharma (2008) assertion that, the extent to which remittances contribute to growth depends on the quality and the environment of the financial system of the recipient countries. Mundaca (2005), Aggarwal, et al (2007), Guilioni and Araz (2006), Gupta et al (2007); Adenutsi (2011);Olubiyi (2009);Calderon, Fajnzylber and Lopez (2007) shift the frontier of the literature in this field towards providing answers to the question about what is the impact of remittances on financial development. Within neoclassical-financial intermediation theoretical framework for example Mundaca (2008) studies the effects that workers' remittances and financial intermediation have on economic growth in Latin America and certain countries in the Caribbean (LAC) over the 1970 -2002 periods.…”

Enhancing the role of remittances through social capital: Evidence from Indonesian household data

“…As explained in the introduction, the role of remittances in improving the livelihood of migrant worker families is still inconclusive. Several studies, such as those by Adams (2006), Gupta et al. (2007), Adams and Page (2005), Adams and Cuecuecha (2016) and Yoshino et al.…”

“…A number of studies have found that remittances have a significant impact in reducing poverty, both at the macro and micro levels. Various studies have shown that poverty is reduced more when international remittances are included in the household income (Adams and Page, 2005; Adams, 2006; Gupta et al., 2007; Adams and Cuecuecha, 2016; Yoshino et al., 2017). However, there is a need to further investigate how remittances actually serve as a pathway out of poverty for households.…”

“…However, there is a need to further investigate how remittances actually serve as a pathway out of poverty for households. As argued by Gupta et al. (2007), the impact of remittances very much depends on how they are used by the recipient households.…”

Relationship between Remittance and Credit Disbursement of the Banking Sector: A Study from Bangladesh

“…Since private investment is assumed to be inversely related to prevailing interest rates, investments expand as interest rates fall, and thereby contributing to higher levels of economic activity (Gani & Sharma, 2013). The findings of Gupta, Pattillo, and Wagh (2007) based on the study of 44 Sub-Saharan African countries from 1975 to 2004 affirm that remittances promote financial development in these nations, after controlling for other macroeconomic and institutional variables influencing financial development and correcting for reverse causality between remittances, poverty and financial development. Likewise, Gani and Sharma (2013) attempted to determine the impact of remittances on the credit disbursement of the banking sector.…”