Effect of International Remittance Inflows on Investment and Economic Growth in Ethiopia

Abstract

According to the World Bank migration and development report, Ethiopia is among the top remittance-receiving countries in Sub-Saharan Africa. But little attention was given to evaluating the effect of remittance inflows on the Ethiopian economy. Therefore, this paper investigated the relationship between international remittance inflows, private investment, and economic growth in Ethiopia over the year 1991-2020. This study has applied ARDL methods of co-integration to explore the relationship between these economic variables. The result from the econometric analysis indicated that international remittance has a significant positive effect on both private investment and economic growth in the long run. But its effect was found to be statistically insignificant in the short run, though the coefficients are positive. The descriptive analysis also clearly shows that remittance inflow to Ethiopia continuously declined after 2014, though the total number of migrants leaving the country is increasing. This could be mainly because of political instability and the current COVID-19 pandemic effect.