Remittances, financial development and poverty reduction in Sub-Saharan Africa: Implications for post-COVID-19 macroeconomic policies

Abstract

To design and implement effective post-COVID-19 macroeconomics policies to tackle poverty in sub-Saharan Africa (SSA), policymakers need to understand the factors shaping poverty in the region. This paper investigates the effect of international remittances and financial development on poverty alleviation in 44 sub-Saharan African SSA countries from 2010 to 2019. The instrumental variable generalised method of moment technique results indicated that while remittances increase poverty, financial development contributes significantly to poverty reduction. The results consistently revealed that remittances increase both male and female poverty rates, while financial development significantly reduces male and female poverty rates. Other factors such as economic growth, foreign direct investment, and trade openness contributed significantly to reducing poverty. In contrast, government expenditure and foreign aid were found to increase poverty rate in SSA. These results are robust to the Lewbel two-stage least squares estimator. The practical implications of these findings for post-COVID-19 macroeconomic policies in SSA are discussed.