Abstract
The importance of remittances to recipient economies has been greatly researched and there is a general consensus around their continued significance to these countries. However, their impact on the development of the receiving economies remains a subject of much debate among academics and policy makers. There is even greater dearth of academic research and debate around the impact of remittances on the sending economies. Unlike Foreign Direct Investment (FDI) flows, whose impact on the economies can be closely correlated to the economies’ outputs, remittances are micro-payments fragmented to multiple recipients, from multiple individual senders with different motives and for a multitude of uses. The researcher modified The Newtonian Gravity model first adapted by a Dutch economist, Timbergen as the first published proponent of the Newtonian gravity model application in analysis of financial flows. The model was applied to remittance flows between the sender and recipient countries, and assess the economic impact on the two economies. The key corridor of the research was between Zimbabwe and South Africa, which represents one of the biggest regional remittances flow corridors in Africa. The investigation revealed that remittances not only had a significant impact on recipient economies, but showed a negative correlation with Zimbabwe’s GDP in particular. Outflows of remittances proved to have very little impact on the sending country, South Africa. On further examination of the other countries studied, distance from the main remitting country had a negative correlation with remittances flows. Economic impairment of receiving countries increased their dependency on the remittances flows, and the funds were not directed at activities that directly contributed to GDP growth of recipient countries.
Highlights
Giuliano and Ruiz-Arranz [14] argued that despite the increasing importance of remittances in total international capital flows, the relationship between remittances and growth has not been adequately studied
The following are the limitations of this study: (1) This study examined the impact of remittances on the economic development on both the sending and the receiving economies, through three seemingly dichotomous analytical lenses
The first conclusion was that international remittances have a significant impact on recipient economies, in particular with Zimbabwe, the impact was an inverse relationship
Summary
Giuliano and Ruiz-Arranz [14] argued that despite the increasing importance of remittances in total international capital flows, the relationship between remittances and growth has not been adequately studied. Giuliano and Ruiz-Arranz [14] state that the relationship between remittances, financial development and growth is a priori ambiguous in that, in well-functioning financial markets, lowering costs of conducting transactions may help direct remittances to projects that yield highest returns and enhance growth rates of recipient communities. They argued that markets with well-developed payment systems, with lower costs of remitting and fewer policy barriers tended to attract more remittances. These assertions have very different bearings on the decisions and strategies for policy makers
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