Dynamics of the remittances: Financial development nexus in Sub Saharan Africa (SSA)

Abstract:

This paper explores the inter-connectedness of remittances and financial development and how their

associated covariates such as savings, investment, money supply and economic growth are impacted

by this relationship. The study employs a panel vector autoregression (P-VAR) estimation technique,

and the generalized methods of moments (GMM) are applied after removing fixed effects and lagged

regressors are used as instruments to have consistent estimators. The main findings of the study

demonstrate that (i) remittances and financial development have a feedback interrelationship, and

some interlinkages are identified amongst their covariates, (ii) economic growth has a dual connection

with financial development and that (iii) savings, investment, and broad money supply influence both

financial development and remittances. These findings contribute to current discussions in the

literature as they support the importance of deepening financial markets in SSA, and attracting more

remittances. The significant role played by the diaspora in improving domestic financial depth is

confirmed. Progression in SSA economic growth helps to stimulate those in the diaspora to repatriate

most of their earnings back home.

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