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The Impact of Remittances on Economic Growth and Development in Africa

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  • Bichaka Fayissa
  • Christian Nsiah

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 from1980 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.

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Bibliographic Info

Paper provided by Middle Tennessee State University, Department of Economics and Finance in its series Working Papers with number 200802.

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Date of creation: Feb 2008
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Handle: RePEc:mts:wpaper:200802

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Web page: http://www.mtsu.edu/~berc/working/Economics_Working_Papers.html
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Keywords: Workers’ Remittances; Economic Growth; Panel Data; Fixed-Effects; Random-Effects; Arellano-Bond; Quantile Regression;

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References

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  1. Barro, Robert J., 1990. "Government Spending in a Simple Model of Endogeneous Growth," Scholarly Articles 3451296, Harvard University Department of Economics.
  2. Easterly, William & Levine, Ross, 1997. "Africa's Growth Tragedy: Policies and Ethnic Divisions," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1203-50, November.
  3. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  4. Jonathan Temple, 1999. "The New Growth Evidence," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 112-156, March.
  5. Barro, Robert J. & Sala-i-Martin, Xavier, 1992. "Public Finance in Models of Economic Growth," CEPR Discussion Papers 630, C.E.P.R. Discussion Papers.
  6. Caselli, Francesco & Esquivel, Gerardo & Lefort, Fernando, 1996. " Reopening the Convergence Debate: A New Look at Cross-Country Growth Empirics," Journal of Economic Growth, Springer, vol. 1(3), pages 363-89, September.
  7. Beck, Thorsten & Levine, Ross & Loayza, Norman, 2000. "Finance and the sources of growth," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 261-300.
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Cited by:
  1. Farid MAKHLOUF & Adil NAAMANE, 2013. "The Impact of Remittances on Economic Growth. The Evidence from Morocco," Working Papers 2013-2014_3, CATT - UPPA - Université de Pau et des Pays de l'Adour, revised Sep 2013.
  2. Jawaid, Syed Tehseen & Raza, Syed Ali, 2012. "Workers’ Remittances and Economic Growth in South Asia," MPRA Paper 39001, University Library of Munich, Germany.
  3. Adenutsi, Deodat E., 2009. "Long-run macroeconomic impact of international migrant remittances on human development in low-income countries: A panel analysis of sub-Saharan Africa," MPRA Paper 37115, University Library of Munich, Germany.
  4. Nathan Pelesai Audu, 2012. "The Macroeconomic Effect of Remittances on the Nigerian Economy: A Time Series Approach," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 2(3), pages 142-155, July.
  5. Adenutsi, Deodat E. & Ahortor, Christian R.K., 2010. "International remittances – the panacea for underdevelopment? A comparative panel data analysis of Sub-Saharan Africa and Latin America," MPRA Paper 29349, University Library of Munich, Germany.
  6. Elu Juliet U. & Price Gregory N., 2012. "Remittances and the Financing of Terrorism In Sub-Saharan Africa: 1974 - 2006," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 18(1), pages 1-42, July.
  7. Giscard Assoumou Ella, 2013. "Impact of international income, prices and monetary shocks on real exchange rate in eight African economies: An empirical study," The Empirical Econometrics and Quantitative Economics Letters, Faculty of Economics, Chiang Mai University, vol. 2(3), pages 41 - 54, September.
  8. World Bank, 2012. "Bangladesh - Towards Accelerated, Inclusive and Sustainable Growth : Opportunities and Challenges, Volume 2. Main Report," World Bank Other Operational Studies 12121, The World Bank.
  9. Mariana Balan, 2012. "Dynamic Effects Of Migrant Remittances On Growth: An Econometric Model With An Application To Southeast European Countries," New Trends in Modelling and Economic Forecast (MEF 2011), ROMANIAN ACADEMY – INSTITUTE FOR ECONOMIC FORECASTING & "Nicolae Titulescu" University of Bucharest, Faculty of Economic Sciences, vol. 1(1), pages 69-78, January.
  10. Ahortor, Christian R.K. & Adenutsi, Deodat E., 2008. "The impact of remittances on economic growth in small-open developing economies," MPRA Paper 37109, University Library of Munich, Germany.
  11. Adenutsi, Deodat E., 2010. "Do international remittances promote human development in poor countries? Empirical evidence from Sub-Saharan Africa," MPRA Paper 29347, University Library of Munich, Germany.
  12. Deluna, Roperto Jr & Pedida, Sunshine, 2014. "Overseas Filipino Workers Remittances, Inequality and Quality of Life in the Philippines," MPRA Paper 56070, University Library of Munich, Germany.
  13. Qayyum, Abdul & Javid, Muhammad & Arif, Umaima, 2008. "Impact of Remittances on Economic Growth and Poverty: Evidence from Pakistan," MPRA Paper 22941, University Library of Munich, Germany.
  14. Bjuggren, Per-Olof & Dzansi, James & Shukur, Ghazi, 2010. "Remittances and Investment," Working Paper Series in Economics and Institutions of Innovation 216, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.

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