Does Remittance Inflow Granger-Cause Economic Growth in South Africa? A Dynamic Multivariate Causality Test

Abstract

In this study, we examine the dynamic causal relationship between remittances and economic growth in South Africa during the period from 1970 to 2017. Although South Africa is well-known for being a source of cross-border remittances to various countries, especially in the African continent, remittance inflows to South Africa have grown in the recent past. The growth in remittances, on one hand, and the need to fight against poverty and inequality in South Africa and ultimately improve economic growth, on the other hand, prompted the need for this study. The study uses the autoregressive distributed lag (ARDL) approach within a multivariate Granger-causality setting to examine the remittance-growth causal link—in an effort to address the variable-omission bias. The empirical findings of the study show that remittances and economic growth are not causally related in South Africa, irrespective of whether the estimations are done in the long run or in the short run. This finding, though contrary to the expectation, is not surprising, given the level of financial sector development in South Africa.

impact of remittances on economic growth in Republic of Kosovo

“…On the other hand, there are a number of studies that reveal bi-directional causality between the variables, meaning that causality is running both directions (Jouini, 2015;Ahmed and Hakim, 2017;Kumar and Vu, 2014 etc. ) Contrary, Nyasha et al (2020) find that there is no evidence of causality, neither in the short-run nor in the long-run between remittances and growth in the case of South Africa over the period 1970 to 2017. The literature provides inconclusive results as it pertains to the direction of causality between remittances and growth.…”

Remittance Inflows, Poverty and Economic Growth in Tanzania: A Multivariate Causality Model

“…Studies examining the impact of remittances on poverty and economic growth have received much attention since the surge in remittance inflows, especially in low-and middle-income countries, albeit the findings on the causality between remittances and poverty are inconclusive: some confirm a unidirectional causal relationship between the two (see: Azam, Haseeb & Samsudin, 2016) others found a bidirectional causal relationship (Azam, Haseeb & Samsudin, 2016;Yasmin et al, 2015;Gaaliche & Gaaliche, 2014;Hatemi-j & Uddin, 2014), while yet others found no causality (Azam, Haseeb & Samsudin, 2016). The same applies to studies that investigated the causality between remittances and economic growth (Depken, Niksic Radic & Paleka, 2021;Jouini, Mabrouk & Mim, 2021;Nyasha & Odhiambo, 2020). Some researchers have taken a step further and investigated the causal relationship between remittances, economic growth, and poverty in the same study (Abduvaliev & Bustillo, 2020).…”

“…Using vector autoregressive models and Granger causality test, the study found a unidirectional causal link between remittances and economic growth (Depken, Niksic Radic & Radeka, 2021). In the same spirit, Nyasha and Odhiambo (2020) analysed the causal relationship between remittances and economic growth using data from 1970 to 2017. Employing an ARDL approach within a multivariate Granger causality framework, the study found no causal relationship between the two (Nyasha & Odhiambo, 2020).…”

“…There is a vast body of literature on the impact of remittances on poverty (see: Musakwa & Odhiambo, 2019, 2020aand 2020bAzam, Haseeb & Samsudin, 2016); the causality between the two (see : Azam Haseeb & Samsudin, 2016;Yasmin, Hussain, Akram & Yasmin, 2015;Gaaliche & Gaaliche, 2014); and the impact of, and causality between, remittances and economic growth (see, e.g. Depken, Niksic Radic & Paleka, 2021;Jouini, Mabrouk & Mim, 2021;Nyasha & Odhiambo, 2020). However, most studies have examined these three factors separately, while very few have examined the causality between the three, yet it is important in formulating policies that aim to fully exploit the benefits of remittances in terms of poverty alleviation and economic growth.…”

Enhancing Economic Growth and Government Revenue Generation in Nigeria: The Role of Diaspora Remittances

“…In their study of the impact of remittances in Indonesia, Adams and Cuecuecha (2010) stated that recipients of remittances are poorer than nonrecipient households as recipients engage in more consumption at the margin rather than investing in productive assets. Nyasha and Odhiambo (2020), examining economic growth in South Africa, conclude that there is no causal relationship between remittances and economic growth in South Africa, while Ahmed and Hakim (2017) conclude that "a long-run bidirectional relationship exists between remittances and economic growth in Togo. "…”