Remittances, Financial Development, and Poverty Reduction in Sub-Saharan Africa

Abstract

This study specifically investigates the direct effect of financial development and remittances as well as the interaction effect of remittances and financial development (FD) on poverty reduction in various income groups in sub-Saharan Africa. The study employed the Panel ARDL model on data from 31 sub-Saharan countries during the period 1990-2020. The study found that in the long run, both remittances and FD contribute to poverty reduction in sub-Saharan Africa, middle-income, and low-income groups within the region. The study also found that the interaction of remittances and FD does not contribute to the poverty alleviation process. In the short run, both remittances and FD fail to enhance poverty reduction in the region and among the income groups. Likewise, the interaction between remittances and FD does not contribute to poverty reduction in the region and within the income groups. The study found that the levels of income play no role in the relationship between remittances, financial development, and poverty reduction but it has little effect in the short-run. There is a need to make financial institutions more efficient in promoting the inflow of remittances through the formal channel by easing and reducing the cost of the transaction of remittances.