Published Online:July 2024
Product Name:The IUP Journal of Applied Economics
Product Type:Article
Product Code:
Author Name:Margaret Rutendo Magwedere
Availability:YES
Subject/Domain:Economics
Download Format:PDF
Pages:17
Remittance inflows to emerging markets and developing economies constitute a significant portion of external finance. In some of these economies, remittances are an economic stabilizer since they earn largest remittance inflows relative to their GDP. This paper examines the nexus between domestic investment and remittances in 30 emerging and developing African economies. The nexus between migration and development is mainly centered on the importance of remittances as a channel of development and wealth transfer. Panel data analysis, using system generalized method of moments for data spanning 2000 to 2021, was used to determine the nexus. The deterministic relationship suggested a statistically significant and negative relationship between remittances and domestic investment. Policymakers should be cognizant of the remittance trap that can emanate from large flows of remittances if remittances are not fully harnessed to boost domestic investment. Hence, it is essential for them to create investment-friendly environments and ensure that remittance flows are directed towards productive uses that promote domestic investment.
Inflow of remittances to developing countries has significantly increased over the last decade. Remittances are now a major source of external finance to low- and middleincome countries (LMIC) (World Bank, 2021). Inflow of remittances to developing countries surpassed foreign direct investment (FDI), official development assistance (ODA) and foreign portfolio investment (FPI) in generating foreign currency for the emerging and developing economies (IMF, 2020; and World Bank, 2021). High macroeconomic uncertainty is harmful to economic progress and social wellbeing. Contrary to the World Bank’s predictions of a fall in remittances by 20% in 2020, remittances only fell by 1.7% (Ratha et al., 2021).