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The Effect of Remittances on Domestic Capital Formation in Select African Countries: A Comparative Empirical Analysis
Author(s) -
Yiheyis Zelealem,
Woldemariam Kasahun
Publication year - 2016
Publication title -
journal of international development
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.533
H-Index - 66
eISSN - 1099-1328
pISSN - 0954-1748
DOI - 10.1002/jid.3194
Subject(s) - cointegration , economics , context (archaeology) , investment (military) , monetary economics , error correction model , affect (linguistics) , empirical research , capital (architecture) , empirical evidence , capital formation , human capital , macroeconomics , demographic economics , econometrics , financial capital , market economy , political science , geography , linguistics , philosophy , archaeology , epistemology , politics , law
Remittances are expected to affect domestic investment, among others, through induced rise in savings and easing of financial constraints. However, the empirical evidence on the relationship between the two variables is rather thin, especially in the context of Africa. This study investigates the short‐run and long‐run effects of remittances on domestic investment in four African countries using the bounds testing approach to cointegration analysis. The findings of the study indicate that whether remittances spur domestic capital formation varies by country and the time horizon considered, highlighting, among others, the importance of identifying the factors that tend to condition their relationship. Copyright © 2015 John Wiley & Sons, Ltd.