Foreign Remittances, Banking Sector Development and Private Sector Investment

Abstract

Purpose-This study seeks to investigate the impact of foreign remittances on private sector investment and the moderating role of banking sector development in Sub-Saharan African Countries. Research design, data, and methodology-The study has used a sample of 15 Sub-Saharan African countries and data for the years 1986 -2017. Data was obtained from the World Bank Development Indicator (WDI) Database. Panel data diagnostic tests were conducted to ascertain the suitability of the data for regression analysis. The data was analyzed through descriptive and inferential statistics, while the hypothesis was tested through hierarchical regression analysis. Results-The finding of this study indicates that foreign remittances and banking sector development had a significant and positive effect on private investment in Sub-Saharan Africa. Besides, the banking sector development significantly moderated the foreign remittances and private sector investment relationship. Conclusions-Based on the results, the study concludes that banking sector development has an important influence on foreign remittances and private sector investment nexus. Due to the antagonistic interaction between foreign remittance and banking sector development, the study recommends the use of alternative ways of channeling remittances to private investment such as; issuance of diaspora bonds and appeal for direct investment b y citizens living abroad.

Remittances, institutional quality and investment in Sub-Saharan Africa

“…The findings contradict several studies that found the institutional quality to be a complement to remittance in the development process (Catrinescu et al. , 2009; Adams and Klobodu, 2016 Githaiga, 2020). The discrepancy in findings could be explained by the fact that the moderating effect of institutions on the remittances-investment and remittances-growth nexuses differed and the majority of the existing literature employed growth as the dependent variable.…”

“…As a result, this paper aims to examine the role of institutional quality in moderating the remittances-investment nexus. Our study is similar to Adams and Klobodu (2016) and Githaiga (2020) but differs by choosing investment as the dependent variable and by including nonfinancial variables.…”

“…They found that institutional quality and the level of financial development are substitutes in the remittances-investment nexus. Using data from 1986 to 2017, Githaiga (2020) investigated the relationship between remittances, banking sector development and private sector investment in SSA. The results denoted that financial development is complementary to the remittances-investment relationship.…”

Foreign remittances, deprivation and patriotism

“…The potential contribution that foreign remittances can make to investment, economic equality, reductive feelings of deprivation, poverty reduction and growth is widely accepted and documented in academic and policy circle (World Bank 2014 ; Fagerheim 2015 ; Jongwanich 2017 ; Sayantan 2017 ), and thus improving inflow of foreign remittances to nations across the world has become an issue of increasing focus for government and policy makers. This is more important in developing countries where foreign remittances far surpass development aid, forms an important addition to domestic income and instrumental to investment dynamics and poverty reduction (Akobeng 2016 ; Kelvin 2017 ; GiThaiga 2020 ; Shah et al 2021 ). But the empirical link between foreign remittances and reductive or weak growth, increased feelings of economic inequality and deprivation has also been established in the academic literature.…”

The Effect of Foreign Capital Inflows on Economic Growth in Nigeria

“…Foreign capital inflows are remittances from foreign nations transferred to developing countries majorly by members of that country living abroad Githaiga (2020). Foreign capital inflows are major forms of resource transfer from the developed to the developing countries where they are usually found to be more productive (Williams, 2016;Sobiech, 2019;ERP, 2006).…”