Analysis of Savings-Investment Gap in Sub-Saharan Africa: Does the nexus between Foreign Remittances and Domestic Financial Sector matter?

Abstract

In recent times, increasing attention is being paid to examine the developmental impact of remittances inflow, particularly due to the emergence of remittances as the fastest growing source of capital flows for developing countries. To this end, we contribute to the literature by analyzing the interactive effects of remittances and financial development on savings-investment gap for a panel of 18 Sub-Saharan African (SSA) countries over the period of 1990 to 2017. Our Panel ARDL model estimation showed that higher remittances have significant reducing effect on savings-investment gap in the long run, and this becomes magnified while accounting for individual and interactive effects of remittances and financial development. We also uncovered the widening effects of rising real GDP growth and bank deposits over a long-term horizon, whereas higher private sector credit widens the savings-investment gap only in the short-run. Meanwhile, liquid liabilities have no significant effect on savings-investment gap both in the short run and long run. We further offered evidence on the complementarity and substitutability effects of remittances and financial development over the short-term and long-term horizons, respectively. We also demonstrated the superior forecast accuracy of the predictive savings-investment gap model - that accounts for both individual and interactive effects - over other specifications, and this is robust to the choice of financial development indicators, samples and forecast horizons. Our results underscore the urgent need for a reduction of transfer costs, so as to encourage both migrant workers and their beneficiaries to make use of the official channels for sending and receiving remittances in the region.

Does illicit financial flows crowd‐out domestic investment? Evidence from Sub‐Saharan Africa economic regions

“…On the effect of broad money supply on investment, the result showed that an increase in money supply crowds‐out investment in the CEMAC and EAC regions but does otherwise in the ECOWAS and SADC regions. Sithole et al (2021) and Adeniyi et al (2021) attributed the crowding‐in effect of broad money supply on investment in the SADC region to the relatively high level of financial development in the SADC region and the effectiveness of the region's monetary authorities to channel idle funds for productive use. On the other hand, broad money has a long‐run crowding‐in effect on investment in the CEMAC, EAC and ECOWAS regions but a long‐run crowding‐out effect in SADC.…”

Growth effect of trade misinvoicing in Sub-Saharan Africa: the role of governance

“…On the other hand, trade openness hurts the growth of SSA economies, indicating that trade liberalisation policies could dampen growth. This is particularly true for many countries in SSA that adopted the Structural Adjustment Programme (SAP) introduced by the Bretton Wood institutions in the 1980s (Adeniyi et al , 2021). The model diagnostics suggests that the models have good fit and their estimates are appropriate for policy decisions.…”

“…Thus, successive governments in the region have made frantic efforts at attracting foreign capital and fostering technological development in individual countries. Some of these efforts include the design and implementation of science, technology and innovation policies; development of modern infrastructural facilities; creation of congenial investment environment; and improvement of institutional quality (Asongu and Odhiambo, 2019; Asongu and Acha-Anyi, 2020; Asongu and Nnanna, 2020; Adeniyi et al , 2021).…”

External Debt and Economic Growth Relationship in Nigeria: A Reconsideration

“…However, in review, it is observed that the recommendation is at variance with the results. Based on the consensus in the literature, Adeniyi et al (2018) investigate the relationship between external debt and economic growth during the period 1981-2015 in Nigeria. The threshold analysis shows that the effect of external debt is sensitive to the measure adopted.…”

“…Incidentally, part of the discussion includes Sami and Mbah (2018) and Kolawole (2020) who affirm the negative impact of external debt on economic growth; and Adegboyega (2018), Akanbi et al (2022) who find external debt impacting positively on economic growth. Nonetheless, Ibi and Aganyi (2015) assert a no-relationship while Adeniyi et al (2018) conclude that methodology influences the effect of external debt on economic growth. As such, for the fact that the country needs policy sensitization that could proffer a solution to the problem of elusive economic growth amid high and increasing external debt, this paper contributes to the discussion by building on Kolawole (2020).…”