The Role of Mobile Money in International Remittances: Evidence from Sub-Saharan Africa

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Date
2023-10-23
Authors
Kirui, Benard Kipyegon
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African Economic Research Consortium
Abstract
Over the past decade, remittance flows to sub-Saharan Africa grew at an average of 12.9% and is expected to increase in the coming decade, however, the high cost of remittances remains a constraint that limits regular remittance flows. About 9.1 percent of remittance flows to sub-Saharan Africa is absorbed by transfer cost making it the most expensive remittance recipient region. With evidence that mobile money services reduce transaction costs for internal remittances, the introduction of mobile money services in international remittances should have the same effect. Against this backdrop, this study investigates the effect of introduction of mobile money services on international remittance transfer costs and determine the effect of international remittance transfer costs on international remittance flows. Least squares dummy variable model and a system GMM is applied to address the first and second objective, respectively. International remittance transfer cost is lower by 46% for corridors that incorporate mobile money in international money transfer channels compared to those that do not. Controlling for other factors, the gap between corridors that incorporate mobile money and those that do not goes down to 11.5%. Thus, a reduction in remittance transfer costs can be achieved by improving cross border mobile money services interoperability.
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