The Impact of Remittances on Economic Growth and Development in Africa
Author(s)
Fayissa, Bichaka; Nsiah, Christian
Abstract
For more than half a century, there have been heated debates on the sources of economic growth in developing economies. The perceived factors of economic growth have ranged from surplus labor to capital investment and technological change, foreign aid, foreign direct investment, investment in human capital, increasing returns from investment in new ideas and research and development. The positive or negative impacts of the above listed traditional sources of economic growth have been well documented in literature. Other researchers have also considered the importance of institutional factors such as the role of political freedom, political instability, voice and accountability on economic growth and development. Despite the increasing importance of remittances in total international capital flows, however, the direct or indirect relationship between remittances and economic growth has not been adequately studied. This study explores the aggregate impact of remittances on economic growth within the conventional neoclassical growth framework using an unbalanced panel data spanning from 1980 to 2004 for 37 African countries. We find that remittances boost growth in countries where the financial systems are less developed by providing an alternative way to finance investment and helping overcome liquidity constraints.
