Remittances, Foreign Aid and Private Consumption in Sub-Saharan Africa (SSA): A System GMM Estimation

Abstract

The question of whether remittances and foreign aid at the macro level impact private consumption in SSA has been explored in this study. Twenty-nine (29) SSA countries were sampled for the study from 2002 to 2017. The System Generalized Method of Moment (SGMM) estimator was applied in the study to account for the dynamics in the model. Empirical evidence showed that foreign aid and remittances exerted positive but insignificant impact on private consumption.

The effect of remittance and volatility in remittances on macroeconomic performance in Africa: any lessons for COVID-19?

“…The positive influence of remittances on consumption is in line with Akpa ( 2018 ); Adelowokan et al ( 2020 ). Unlike Akpa ( 2018 ) and Adelowokan et al ( 2020 ), this study found a significant relationship between remittances and consumption.…”

“…The positive influence of remittances on consumption is in line with Akpa ( 2018 ); Adelowokan et al ( 2020 ). Unlike Akpa ( 2018 ) and Adelowokan et al ( 2020 ), this study found a significant relationship between remittances and consumption. This difference in outcome may be the result of selecting countries whose economy is more dependent on remittances in the current study.…”

“…According to the World Bank, remittances enable households with the ability to meet basic needs of life such as food, shelter and healthcare. This notion has gained empirical support as studies have also shown that remittances reduce poverty and inequality in low- and middle-income countries (Akobeng 2015; Bang et al 2016 ), boosts nutritional outcomes through its positive impact on private consumption (Akpa 2018 ; Adelowokan et al 2020 ), improves human capital development, thereby reducing child labour and trafficking in disadvantaged communities (Amakom et al 2014 ; Amega 2018 ).…”

“…As a result, the economic literature is filled with empirical studies that have dealt with diverse issues on remittance flows to Africa (and indeed, other regions). Studies have thus established that, among others, remittances reduce poverty and inequality (Ghosh 2006 ; Koechlin and Leon 2007 ; Anyanwu and Erhijakpor 2010 ; Ratha 2011 ; Akobeng 2015; Bang et al 2016 ), aid human capital development through its positive effect on education and health outcomes (Lu and Treiman 2007 , Mohapatra and Ratha 2011 ; Zhunio et al 2012 ; Amakom and Iheoha 2014 ; Amega 2018 ) and positively impact on private consumption in recipient countries (Akpa 2018 ; Adelowokan et al 2020 ). The impact of remittance inflows on financial development, economic growth, investment, fiscal and monetary variables have also been investigated in a wider economic literature.…”