Macroeconomic Determinants of Remittance Flows to Sub-Saharan Africa

Deodat E. Adenutsi and Christian R. K. Ahortor

Working Papers from African Economic Research Consortium

Abstract: The fundamental objective of this study is to empirically explore the macroeconomic factors that explain variations in migrant remittance inflows to Sub-Saharan Africa (SSA). In doing this, the paper sampled 38 out of 48 SSA countries for which consistent balanced panel data can be constructed for the period 2000-2009. The Blundell-Bond system GMM dynamic panel data analytical framework was adopted. The results show that migrant remittances are largely driven by altruism, a signal that the sub-region has not been able to attract more a€˜self-interest remittances', probably due to unattractive investment climate arising out of implementation of unsound macroeconomic policies. The key macroeconomic determinants of remittance flows, measured as a percentage of GDP, are home-country income, host-country income, income differential, inflation, real interest rate differential, real exchange rate depreciation, private sector credit, institutional quality and remittance inflows inertia. While remittance inertia, host-country income, income differential, inflation, institutional quality, interest rate differential and real exchange rate depreciation have consistent positive individual impacts on remittance inflows, home-country income and private sector credit have negative effects on remittances. This study, thus, recommends that to attract optimal remittances a- remittances that are in excess of altruistic motive a- to SSA, there is need to ensure macroeconomic stability and pro-growth policies, and strategic fiscal, monetary and exchange rate policy reforms in SSA.

Date: 2021-01-20
Note: African Economic Research Consortium
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