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Remittances and Financial Development: Evidence from Sub‐Saharan Africa
Author(s) -
Williams Kevin
Publication year - 2016
Publication title -
african development review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.654
H-Index - 32
eISSN - 1467-8268
pISSN - 1017-6772
DOI - 10.1111/1467-8268.12202
Subject(s) - economics , yield (engineering) , exploit , panel data , baseline (sea) , democracy , development economics , monetary economics , demographic economics , political science , econometrics , materials science , computer security , politics , computer science , law , metallurgy
Abstract This paper uses 5‐year non‐overlapping panel data for the period 1970–2013 to study the effect that remittances have on financial development in sub‐Saharan Africa (SSA). The paper further examines whether and how democratic institutions mediate the effect that remittances have on financial development. The panel estimates yield that remittances are significantly positively associated with financial development. The baseline estimates indicate that a 10 percent increase in remittances increases domestic private credit by 0.43 percent and the cumulative effect is around 1.84 percent. Democratic institutions do not significantly mediate the effect that remittances have on financial development in SSA. These results inform debates over remittances’ role as an important source of development finance in SSA and suggest that policymakers can exploit the advantages of remittances by pursuing measures to ease the flows of remittances to the region.