THE EFFECT OF PERSONAL REMITTANCE ON ECONOMIC GROWTH IN SUB SAHARAN AFRICA

Yismaw Ayelign, Ermias Ashagrie

Abstract


The objective of this paper is to analyze the macroeconomic effects of personal remittance in 29 countries located in the Western and Eastern African regions. The variables on which the effect is considered were the current accounts balance & economic growth. The study covered a panel data of 2000-2014. The estimation models taken in to consideration were fixed effects and random effects models. For an estimate of the data for the countries together, for the economic growth, random effects model was found to be the appropriate by applying the Hausman model specification test and Breusch-Pagan Lagrangian Multiplier (LM) test. But for segregated estimation of the data in to the West and East regions, random effects for the Eastern and fixed effects for the Western become the appropriate estimation models by using the same tests. Based on the estimation, remittance has statistically significant and positive effect on economic growth in the countries together. When remittance increases by 10%, the economy grows by 1.47%. Plus, a 10% rise in per capital remittance causes, a 1.14% growth in per capita GDP. When the result is compared in the two regions, the effect in the East is greater than in the west. Governments in Sub-Saharan Africa should work towards smoothing the flow by reducing cost of transfer, to promote saving by the recipient households so that remittance will be made more productive and the tackle problems of transfer to bring the informal flow to the formal way.

 

JEL: F16, F66, P44

 

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personal remittance, macroeconomic effect, remittance in Africa, remittance growth effect

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References


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DOI: http://dx.doi.org/10.46827/ejefr.v0i0.518

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