Remittances, Economic Growth and Poverty: A Case of African OIC Member Countries

Abstract

This paper investigates the impact of remittance inflows on economic growth and poverty reduction for seven African countries using annual data from 1992-2010. By using the depth of hunger as a proxy for poverty in a Simultaneous Equation Model (SEM), we find that remittances have statistically significant growth enhancing and poverty reducing impact. Drawing on our estimates, we conclude that financial development level significantly increases the remittances inflows and strengthens poverty alleviating impact of remittances. Results of our study further show a signficant interactive imapct of remittances and finacial develpment on economic growth, suggesting the substitutability between remittance inflows and financial development. We further find that 3 percentage point increase in credit provision to the private sector (financial development) can help eliminate the severe depth of hunger in the region. Remittances, serving an alternative source of private credit, can be effective in this regard. Keywords: Remittance Inflow, Poverty Alleviation, Financial Development, Simultaneous Equation Model

Global economic fluctuations and human development: how is the impact transmitted in Egypt?

“…Therefore, any negative shock to remittances leads to a decrease in HDI. This result agrees with Adenutsi (2010), who concluded that remittances have a positive impact on human development in the long run, and Ustubici and Irdam (2012), who agreed that there is a positive correlation between remittances and human development, as well as Shirazi et al (2018), who found that the increased flows of remittances improve the level of consumption and build human capital.…”

“…Although Ustubici and Irdam (2012) agreed on the positive correlation between remittances and human development, it found that the developmental effects depend on the country's government approaches to migration, considering the most positive effect of remittances to be where the governments regard migration as an effective labor export strategy. In addition, Shirazi et al (2018) evaluated the effect of remittance inflows on economic growth and poverty for seven member countries of the Organization of Islamic Cooperation. Their study used a simultaneous equation model and found that the increased flows of remittances improve the purchasing power of the poor, increase the level of consumption, reduce poverty and build infrastructure and human capital (Shirazi et al, 2018).…”

Remittances and their Impact on Poverty: An Empirical Study of Developing Countries Using ARDL

“…Their findings were that on average poverty is reduced by 8.3 % when share of remittances in GDP increase by 10 %. Shirazi et al (2018) investigated the impact of remittances on poverty and economic growth in African OIC member countries, concluding that remittances may have a beneficial effect on poverty. They also explained how economic development in a country leads to an increase in remittances, which increases the impact of remittances in poverty reduction efforts.…”

Determinants of Economic Growth in Organization of Islamic Cooperation with Governance Index as a Moderating Variable

“…Higher remittance inflows can improve the development of the domestic financial sector. This could trigger the government to reform for better access to banking (Shirazi, Javed, &Ashraf, 2018). So remittances are considered a vital and stable source of funding for economic development in a developing country that exists in OIC countries.…”