Macroeconomic Determinants of Remittance Flows to Sub-Saharan Africa
Adenutsi, Deodat E.
Ahortor, Christian R. K.
African Economic Research consortium
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 ‘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 – remittances that are in excess of altruistic motive – to SSA, there is need to ensure macroeconomic stability and pro-growth policies, and strategic fiscal, monetary and exchange rate policy reforms in SSA.