The Impact of Remittances and Financial Development on Economic Growth in ECOWAS Region
Author(s)
Download Full PDF Pages: 32-46 | Views: 186 | Downloads: 61 | DOI: 10.5281/zenodo.8108574
Abstract
This study re-examined the relationship between remittances, financial development, and economic growth in 13 ECOWAS countries. The model was built using the System GMM estimator. According to the estimated results, remittances have a considerable negative influence on economic growth in the short term but a significant favorable impact in the long run. Financial development was found to be minimal in determining economic growth in the ECOWAS sub-region, contrary to expectations. This may be due to the fact that the financial sector, particularly the banking system, invests funds deposited by domestic and international customers in short-term, less risky investments like treasury bills and treasury certificates rather than investing in or lending to the real sector like agriculture and manufacturing. As a result, this research suggests that remittances are a significant source of economic growth in the ECOWAS sub-region, whereas financial development is not a significant driver of economic growth. In the ECOWAS sub-region, however, the combination of remittances and financial development is critical for both short- and long-term growth. The outcome suggests that remittances and financial development can be combined to enhance economic growth in a variety of ways.
Keywords
Financial development; Remittances; Economic growth; ECOWAS; GMM estimation
References
Akonji, D.R., Wakili, A.M. (2013). The impact of net migrant remittance on economic growth: Evidence from Nigeria. International Journal of humanities and Social Science, 2(4), 2383-2395.
Aggarwal, R., Demirguc-Kunt, A., & Peria, M.S. (2011). Do remittances promote financial development? Journal of development economics, 96, 255–264.
Alfaro, L., Chanda, A., Kalemli-Ozcan, S., & Sayek, S. (2004). FDI and economic growth: The role of local financial markets. Journal of International economics, 64(1), 89-112.
Ang, J. B., & McKibbin, W. J. (2007). Financial liberalization, financial sector development and growth: Evidence from Malaysia. Journal of Development Economics, 84(1), 215–233.
Arcand, J., Berkes, E., & Panizza, U. (2012). Too much finance? International monetary fund, research department (Graduate Institute of International and Development Studies Working Paper, no. 02)
Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. The review of economic studies, 58(2), 277-297.
Arellano, M., & Bover, O. (1995). Another look at the instrumental variable estimation of error-components models. Journal of econometrics, 68, 29-51.
Asongu, S., & Odhiambo, N.M. (2019). Financial access, governance and insurance sector development in Sub-Saharan Africa. Journal of Economic Studies, 47(4), 849-875.
Bawumia, M. (2010). Monetary Policy and Financial Sector Reform in Africa: Ghana’s experience. Accra, Ghana: Combert Impressions Ghana Ltd.
Blouchoutzi, A., & Nikas, C. (2014). Emigrants’ remittances and economic growth in small transition economies: The cases of Moldova and Albania. East-West journal of economics and business, 18(2), 45-65.
Chenery, H.B. & Stout, A. (1966). Foreign assistance and economic development. American Economic Review, 55, 679-733.
Chowdhury, M. (2016). Financial development, remittances and economic growth: Evidence using a dynamic panel estimation. Journal of applied economic research, 10(1), 35–54.
Danmola, R. A., & Wakili, A. M. (2013). The impact of net migrant remittance on economic growth: evidence from Nigeria. International Journal of Humanities and Social Science, 3(8), 303-315.
Ding, G., Vitenu-Sackey, P. A., Chen, W., Shi, X., Yan, J., & Yuan, S. (2021). The role of foreign capital and economic freedom in sustainable food production: Evidence from DLD countries. PLoS ONE 16(7): e0255186. https://doi.org/10.1371/journal.pone.0255186
Ding, G., & Vitenu-Sackey, P. A. (2021). Central bank independence and Economic growth in Ghana. What threshold of inflation and GDP per capita matter? The Economics and Finance Letters, 18(1); 104-116. DOI: 10.18488/journal.29.2021.81.104.116
De Haas, H. (2007). Remittances, migration and social development. A conceptual review of the
literature.
Fayissa, B., & Nsiah, C. (2010). The impact of remittances on economic growth and development in Africa. The American economist, 55(2), 92–103.
Freund, C., & Spatafora, N. (2008). Remittances, transaction costs, and informality. Journal of Development Economics, 86(2), 356–366.
Guiliani, P., & Ruiz Arranz, M. (2005). Remittances, financial development and growth (IMF Working paper 05/234). Washington DC, USA: International Monetary Fund.
Guiliano, P., & Ruiz-Arranz, M. (2009). Remittances, financial development, and growth. Journal of Development Economics, 90(1), 144–152.
Goschin, Z. (2013). The remittances as a potential economic growth resource for Romania. Annales universitatis apulensis series oeconomica. 15(2): 655–66.
Grossman G., Helpman E. (1991). Innovation and Growth in the Global Economy. MA: MIT Press, Cambridge.
Hansen, L.P. (1982). Generalized instrumental variables estimation of nonlinear rational expectations models. Journal of the econometrica society, 50(5), 1269-1286.
Hongli, J., & Vitenu-Sackey, P. A. (2020a). Assessment of the effectiveness of foreign aid on the development of Africa. International Journal of Finance & Economics. 10.1002/ijfe.2406
Hongli, J., & Vitenu-Sackey, P. A. (2019b). Financial inclusion and Economic growth: the role of commercial banks in West Africa. The International Journal of Business and Management Research, Vol.12 Number 1, 5-21.
Hongli, J., & Vitenu-Sackey, P. A. (2019c). The impact of renewable energy, economic growth and FDI on carbon emissions: An evidence of 15 African countries using panel cointegration regression models, International Journal of Management Sciences and Business Research 07, 14-22.
Ikhide, S.I., & Alawode, A.A. (2011). Financial sector reforms, macroeconomic instability and the order of economic liberalizations: the evidence from Nigeria (AERC Working Paper no. 112).
Imai, K.S., Gaiha, R., & Garbero, A. (2014). Remittances, growth and poverty: new evidence from Asian countries, Journal of Policy Modeling, 36(3), 524-538.
Jalilian, H., & Kirkpatrick, C. (2007). The impact of regulation on economic growth in developing countries: a cross-country analysis. World Development, 35(1), 87–103.
Kaufmann, D., Kraay, A., & Mastruzzi, M. (2007). Governance matters VI: Aggregate and individual governance indicators (working paper, no. 4280). Washington, DC: World Bank.
Kumar, R.R., & Vu, H.T. (2014). Exploring the nexus between ICT, remittances and economic growth: A study of Vietnam. Journal of Southeast Asian Economies, 31(1), 104–120.
Levine, R. (2003). Migration, spillovers, and trade diversion: The impact of internationalization on stock market liquidity (National Bureau of Economic Research Working Paper no. 9614).
Mamingi, N., & Perch, J. (2013). Population growth and economic growth/development: An empirical investigation for Barbados. Journal of economic sustainable development, 4(4), 93– 105.
Odhiambo, N.M. (2010). Finance-investment-growth nexus in South Africa: an ARDL-bounds testing procedure. Economic Change Restructuring, 43(3), 205–219.
Owens, E. (1987) The future of freedom in the developing world. Pergamon Press.
Pagano, M. (1993). Financial markets and growth: An overview. European economic review, 37, 613-622.
Podrecca, E., & Carmeci, G. (2001). Fixed investment and economic growth: New results on causality. Applied economics, 33(2), 177-182.
Rao, B., & Hassan, G. (2011). Determinants of the long-run growth rate of Bangladesh. Applied economics letters, 18(7), 655-658. Retrieved November 5, 2020, from DOI: 10.1080/13504851003800760
Rapoport, H. & Docquier, F. (2005) The economics of migrants’ remittances (Discussion Paper no. 1531). Bonn, Germany: Institute for the study of Labor.
Ratha, D. (2016). Migration and remittances Factbook 2016. The World Bank.
Romer, P. (1986). Increasing returns and long- run growth. Journal of Political Economy, 62, 1002-1037.
Romer, P. (1990). Endogenous technological change. Journal of political economy, 98, 71– 102.
Schumpeter, J.A. (1911). The theory of economic development. USA: Harvard university press.
Sen, A. (1999). Development as Freedom. NY: Alfred Knopf Publisher.
Sobiech, I. (2015). Remittances, finance and growth: Does financial development foster remittances and their impact on economic growth? (FIW Working Paper Series, no. 158).
Solow, R. M. (1956). A contribution to the theory of economic growth. The quarterly journal of economics, 70(1), 65-94.
Tchamyou, V.S., Erreygers, G., & Cassimon, D. (2019). Inequality, ICT and financial access in Africa (AGDI Working Paper, No. 48). Yaoundé. AfricanGovernance and Development Institute.
Tchamyou, V.S. (2020). Education, lifelong learning, inequality and financial access: Evidence from African countries. Journal of Contemporary Social Science, 15(1), 7–25.
Todaro, M.P. & Smith, S.C. (2012). Economic development (11th ed.). Boston, United States: Addison- Wesley.
Vitenu-Sackey, P. A., & Barfi, R. (2021). The Impact of Covid-19 Pandemic on the Global Economy: Emphasis on Poverty Alleviation and Economic Growth. The Economics and Finance Letters, 18(1); 32-43. DOI: 10.18488/journal.29.2021.81.32.43
Vitenu-Sackey, P. A., & HongLi, J. (2019a). Financial Inclusion and Banks Performance: An Empirical Study of 10 West African Countries Using Panel Cointegration FMOLS Regression Methodology. European Journal of Business and Management, Vol 11, No 21. 10.7176/EJBM/11-21-05
Vitenu-Sackey, P. A., & Hongli, J. (2020b). Financial inclusion and poverty alleviation: the role of commercial banks in West Africa. International Journal of Business, Economics and Management, 7 (1), 57-70. DOI: 10.18488/journal.62.2020.71.57.70
Vitenu-Sackey, P. A. (2020a). Financial Development, Foreign Direct Investment and Carbon Emissions: A Comparative Study of West Africa and Southern Africa Regions. International Review of Research in Emerging Markets and the Global Economy (IRREM), 6(1), 1550-1569.
Vitenu-Sackey, P. A. (2019b). The Contributing Factors to Banks Performance in Ghana: Empirical Evidence from 1996 to 2017. International Journal of Management Sciences and Business Research 09, 63-78.
Vitenu-Sackey, P.A. (2020c). The Impact of Social Media on Economic growth: Evidence from Facebook, Youtube, Twitter and Pinterest. International Journal of Business, Economics and Management, 7(4), 222-238. DOI: 10.18488/journal.62.2020.74.222.238
Vitenu-Sackey, P.A. (2021d). The role of social media in financial development. Academia Letters, Article 3025, 1-7. https://doi.org/10.20935/AL3025
Vitenu-Sackey, P. A., & Bathuure, I. A. (2020). Does government expenditure on secondary education affect economic growth and secondary school enrollment? An empirical evidence of Ghana. International Journal of Business, Information and Management, 12 (3), 38-50.
Vitenu-Sackey, P.A., Oppong, S., & Bathuure, I.A. (2021). The impact of green fiscal policy on green technology investment: Evidence from China. International Journal of Management Excellence, 16(3), 2348-2358.
Vitenu-Sackey, P.A, & Alhassan, N. (2019). How does democracy affect poverty alleviation? Empirical evidence from Africa. International Journal of Management Sciences and Business Research, Dec-2019 ISSN (2226-8235) Vol-8, Issue 12, 21-31.
Vitenu-Sackey, P. A., Barfi, R., & Oppong, S. (2019). Stock Market Capitalization, Foreign Direct Investment and Stock Market Performance: A Comparative Study of Ghana and Nigeria, International Journal of Management Sciences and Business Research 09, 79-90.
Wang, J.Y., & Blomström, M. (1992). Foreign investment and technology transfer: A simple model. European economic review, 36(1), 137-155.
Xinying, J., Oppong, S., & Vitenu-Sackey, P. A. (2019). The impact of personal remittances, foreign direct investment and exports on economic growth: Evidence from West Africa. European Journal of Business and Management, Vol.11, No.23, 24-32.
Yushang, K., Bako, R. K., & Vitenu-Sackey, P. A. (2019). Financial development, foreign direct investment and banking sector performance: An evidence from African countries with stock exchange market. International Journal of Management Sciences and Business Research, 09, 37-44.
Cite this Article: