Foreign Remittances, Good Governance and Human Development in Sub-Saharan Africa: Evidence from FMOLS and DOLS

Kabiru Kamalu,Wan Hakimah Binti Wan Ibrahim

doi:10.37231/jmtp.2021.2.4.151

Abstract

Even though some progress has been recorded in terms of GDP growth in Sub-Saharan Africa, still the region has high level of extreme poverty, income inequality, insecurity, consequently low human development. This study examined the effect of foreign remittances and governance on human development for 20 countries of sub-Saharan Africa, using data from 1996 to 2019. The study used FMOLS and DOLS methods to estimates the long run coefficients. All the variables are I(1), have cross section dependency and cointegrated. The results revealed that foreign remittances and governance promote long run human development in sub-Saharan Africa. The results also show that inflation, population growth and military expenditures found to have negative long run effect on human development, while financial development have positive long run effect on human development in sub-Saharan Africa. Therefore, to promote human development, policies that will attract and encourage sending remittances through official channel should be put in place, especially related to the cost of sending remittances to sub-Saharan Africa. Also, policies to strengthen institutions and provide quality regulatory and legal framework for equitable distribution of resources to reduce poverty, and the cost of doing business, thereby promoting business activities, human capital development, consequently higher human development.

Highlights

The global trends of human development witnessed progression of many countries from one level of human development to the as a result of improvement in human capital, life expectancy and income, especially in emerging markets
IMPLICATIONS Conclusion This work examined the effect of foreign remittances and governance on human development in 20 sub-Saharan Africa with available data, from 1996 to 2019, using Fully Modified Ordinary Least Square (FMOLS) and Dynamic Ordinary Least Square (DOLS) methods
Based on the parameters obtained from FMOLS and DOLS models, it was established by this study that foreign remittances and governance are important long run determinants of human development in sub-Saharan Africa

Summary

Introduction

The global trends of human development witnessed progression of many countries from one level of human development to the as a result of improvement in human capital, life expectancy and income, especially in emerging markets. 31 out of the 34 countries with low human development are from sub-Saharan Africa. Even though some sub-Saharan African countries like Mauritius, Seychelles, Botswana, Gabon and South Africa, have made progress in human development, but, many others, for instance, Togo, Central African Republic and Niger top the list of countries with lowest human development ranking in the world (HDR-UNDP, 2020). The rate of extreme poverty is going down across the African countries, most of the sub-Saharan African countries are not doing well as regards to the target set by Sustainable Development Goals (SDGs) of “no poverty” by the year 2030. With continuous trend in sub-Saharan African region, 90% of the population of the region, about 300 million people, will be extremely poor by 2030 (Verde & Tome, 2019)

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