Rainfall, Financial Development, and Remittances: Evidence from Sub-Saharan Africa

Abstract

Abstract:We use annual variations in rainfall to examine the effects that exogenous, transitory income shocks have on remittances in a panel of 41 Sub-Saharan African countries during the period 1970-2007. Our main finding is that on average rainfall shocks have an insignificant contemporaneous effect on remittances. However, the marginal effect is significantly decreasing in the share of domestic credit to GDP. So much so, that at high levels of credit to GDP rainfall shocks have a significant negative effect on remittances, while at low levels of credit to GDP the effect of rainfall on remittances is significantly positive.

Trade openness and government size of small developing countries

“…(), Barrios et al . (), Brückner (), Brückner and Ciccone (), Miguel and Satyanath (), Ciccone (), as well as Arezki and Brückner () . We thus use rainfall as the instrument for trade openness in SSA to test the significance of BDI cost in the second‐stage regression and we find that the BDI cost enters insignificantly in the second stage .…”

Remittances and Financial Development: Evidence from Sub‐Saharan Africa

“…We provide additional support, in column (9), that instrumented remittances are exogenous to contemporaneous variations in financial development, by estimating a dynamic panel model that includes lagged financial development as a regressor. The lagged financial development regressor closed down any effect that current financial development has on remittances (Arezki and Brückner, ). Including lagged financial development as a regressor does not change the main finding, though the size of the estimated coefficient on remittances is somewhat smaller.…”

“…Development agencies and researchers began paying attention to the development impact of remittances in developing countries circa 1980s. Since then, the accuracy of remittances data has improved dramatically (Arezki and Brückner, ). This improved data quality implies that the average elasticity response of financial development to a change in remittance flows should be more pronounced post‐1980s.…”

“…The steady increase in remittances over the past decades constitutes an important source of household income and foreign exchange for developing countries, particularly for sub‐Saharan Africa (SSA), a region with a large share of the world's poor. According to the World Bank, Africa's diaspora send around $40 billion a year in remittances to their country of origin and ‘tens of millions of African migrants scattered around the world could mobilize more than $100 billion a year to help develop the continent’ (quoted in Arezki and Brückner, ). Given the size and stability of remittance flows to SSA, assessing the impact of remittances on economic development is important because there is an urgent need for improved economic performance in most economies in the region, and it has been shown that remittances promote economic development (Feeny et al ., ).…”

Revisiting the Effects of Remittances on Bank Credit: A Macro Perspective

“…Our analysis is related to a burgeoning body of research that studies the relationship between remittances and broad financial development. Findings from this literature indicate that while remittances are often used to overcome credit constraints in financially underdeveloped economies (Giuliano and Ruiz‐Arranz, ; Ramirez and Sharma, ; Arezki and Bruckner, ; Combes et al ., ; Anzoategui et al ., ), their aggregate effect on financial deepening is on balance positive (Hunte, ; Martinez Peria et al ., ; Billmeier and Massa, ; Gupta et al ., ; Aggarwal et al ., ; Demirguc‐Kunt et al ., ). However, there is also some (limited) micro‐level evidence suggesting that the likelihood of a household having a bank account does not depend on the volume of remittances received (Mogilevsky and Atamanov, ; Brown et al ., ).…”