Do Workers’ Remittances Promote Financial Development in Sub-Sahara Africa Countries?

Abstract

This study examines the impact of workers’ remittances on financial development in 32 Sub-Sahara Africa countries. In this paper we employ dynamic panel GMM model to study the potential effect of remittances on financial development with emphasis on financial intermediation. While the study depends on credit to private sector as a measure of financial development, past level of financial development, inflation, globalisation, FDI, size of government economic growth and worker remittances were controlled for. Employing data from 1996 -2010, the study discovers that workers’ remittances affect financial development in a positive and significant way. This positive relationship suggests that remittances complements financial intermediation in SSA countries as exemplified by "endogenous growth" literature and the canonical intermediating model with the insights that remittances savings behaviour will generally influence equilibrium financial growth rates.