The Impact of Remittances on Economic Growth and Development in Africa

The perceived factors of economic growth in developing economies have ranged from surplus labor to capital investment and technological change, trade, foreign aid, foreign direct investment, investment in human capital, increasing returns from investment in new ideas, and research and development. Other researchers have also considered the importance of institutional factors such as the role of political freedom, political instability, and voice and accountability on economic growth and development. Despite the increasing importance of remittances in total international capital flows, however, the relationship between remittances and economic growth has not been adequately studied. This study explores the aggregate impact of remittances on economic growth within the conventional neoclassical growth framework using panel data spanning from 1980 to 2004 for 36 African countries. We find that remittances positively impact economic growth by providing an alternative way to finance investment and helping to overcome liquidity constraints.