Remittances and Economic Growth in Selected Countries in Sub-Saharan Africa

Abstract

This study examines the relationship between remittances and economic growth in ten selected countries in Sub-Saharan Africa (SSA) from 2000 to 2023 using annual data from the World Bank. Anchored on the Two-Gap Model and an ex-post facto research design, this study employed cross-sectional dependence, unit root, and Granger causality tests, alongside Panel Estimated Generalized Least Squares (EGLS) with cross-section Seemingly Unrelated Regression (SUR) weights to account for heteroskedasticity and cross-sectional dependence across countries. Economic growth (dependent variable) was proxied by GDP per capita growth, while remittances, trade openness, and foreign direct investment (FDI) served as explanatory variables. The results indicate that remittances and FDI significantly promote economic growth, whereas trade openness exerts a negative but insignificant effect. The results also revealed a unidirectional causality from remittances to growth in the selected countries. This study concludes that remittances play a critical role in fostering growth in the region. It recommends, among other things, that governments in Sub-Saharan African countries should enhance diaspora engagement and implement policies that reduce remittance transfer costs through mobile banking and streamlined financial systems.