Remittances inflow and economic growth nexus in Sub-Saharan Africa: Do institutional quality and macroeconomic stability matter?

Abstract

The challenge of achieving “growth” without development in numerous developing countries, particularly within the African region, has instigated a discourse on the effects of institutional quality and the macroeconomic environment on the primary drivers of growth and remittance inflows. This paper seeks to scrutinize the interplay between capital inflow, remittances, and economic growth in Sub-Saharan African (SSA) countries, considering the moderating influence of institutional and macroeconomic stability. Employing a balanced panel data set encompassing 24 countries from 2005 to 2019, this study investigates the hypothesis that the impact of capital inflow on economic growth varies depending on the institutional quality and macroeconomic stability of the recipient countries. The study employs a DOLS panel-based cointegration approach, revealing heterogeneous slope coefficients, as evidenced by the slope homogeneity test. Furthermore, the cross-sectional dependence test indicates that the panels are independent across different sections. All variables are I (1), as affirmed by the CADF and CIPS tests for unit root.

The cointegration test conducted by Pedroni, Kao, and Westerlund establishes that the examined variables maintain long-term relationships. The long-run estimated coefficients derived from the regression analysis using DOLS cointegration demonstrate a positive correlation between per capita income and remittance when interacted with macroeconomic policy. Consequently, addressing institutional quality and macroeconomic stability is imperative, as they play a pivotal role in moderating the efficacy of remittance inflows and their impact on the economic growth of the region.