Macroeconomic impact of migration and remittances on development: Evidence from sub-Saharan Africa

The debate on the complex linkage between migration and development continues unabated. Today, remittances inflow is increasing and is also considered one of the main external sources of finance for most countries in Sub-Saharan Africa (SSA) and other developing countries. Do these increase inflows of remittances contribute to development? This study examines the macroeconomic impact of remittances on development through capital investment and human capital channels in 30 SSA countries over the period 2004-2018. We apply dynamic panel estimates - System Generalised Method of Moments (Sys-GMM) methods. The empirical estimation results reveal that remittances impact development positively via capital investment. This shows that remittances are not only used for consumption but equally for investment purposes. The results also show that financial and non-financial institutions are significant determinants of investment growth. The interaction terms exhibit a negative and statistically significant impact on capital investment. Thus, in countries with weak financial and non-financial institutions remittances serve as a source of capital for investment. The findings further indicate that the marginal significance of remittances as a source of capital for investment falls with well-developed financial and non-financial institutions. The study equally found that remittance inflows impact positively on human development. In essence, remittances are vital in fostering human development through education and health in SSA. These findings are a key step in understanding the complex migration and development nexus in SSA. As per the empirical findings, the study recommends that the relevant institutions and policymakers in SSA should formulate a clear-cut policy framework and strategies to attract, increase and harness the full benefit of remittances which are key in achieving the UN Sustainable Development Goals 2030. One such policy is to reduce tax on remittances and encourage the greater use of digital remittance channels which has lower transaction costs. This will increase remittances flow through the official channel and promote development.