Moderating remittance and economic growth relationship with exchange rate: What new can we learn from Africa’s economy?

Abstract

The paper employs partial and biwavelet coherence techniques to examine the time-frequency dependence structure of international remittance inflow on economic growth by moderating the effect of exchange rates. We investigate the comovements of remittance and economic growth from 1980 to 2020. We observed heterogeneous patterns in the comovements structure of international remittance inflow and economic growth at various timescales. By examining the biwavelet coherence, the comovements are noticeable at elevated occurrences, implying that exchange rates, when acting as moderator in the nexus between remittance and economic growth, can hamper economic growth. Findings from the partial wavelet coherence reveal that exchange rates influence remittance and economic growth connectedness in emerging and frontier economies in Africa. Consequently, in situations where radical changes occur in exchange rates, the implemented policies of emerging African countries seem to have largely influenced the comovements between remittance inflow and economic growth. The risk posed by exchange rates on remittance inflow requires sustainable policies to prevent widespread spillovers, mostly during severe economic downturns. We posit that implementation of exchange rate mechanisms are central to parity which is essential to mitigating potential risk.