Abstract:
This study examines the effects of remittances on economic Growth across 34 countries in sub Saharan Africa over the period from 2000 to 2022. Utilizing a panel data approach, this analysis
investigates the direct effects of remittances on Economic growth with moderating roles of
exchange rate and institutional quality by using fixed effect model alongside with Pooled OLS.
Additionally, it explores the indirect effect of remittance through mediating effects of consumption
and investment (gross capital formation) by applying SEM. The results reveal that remittances
exert a significantly detrimental direct effect on GDP per capita within the sub-Saharan African
context. Moreover, the findings demonstrate that remittances have a substantial negative indirect
effect on GDP per capita, primarily mediated through consumption and investment; thus, the
influence of remittances on economic growth is partially transformed through these channels.
These findings suggest that the inflow of remittances generates contractionary pressures on the
economic growth. The research further clarifies the moderating role of exchange rate within the
remittances-growth nexus. The results indicate that an increase in the exchange rate mitigates the
negative direct and indirect impacts of remittances, as individuals are more inclined to remit when
the exchange rate is elevated. Conversely, the moderating effect of institutional quality was found
to be adverse, indicating that as institutional quality improves, remittances become less essential.
Based on the finding the research recommend to enhance institutional quality and reduce
remittance. These findings highlight the importance of considering both direct and indirect
transmission mechanisms, as well as the role of contextual factors such as exchange rate and
institutional quality, in assessing the comprehensive impact of remittances on economic Growth.
