Abstract
This study uses country-level panel data covering the period from 2000 to 2014 to investigate the impact of remittances on the GDP per capita in nineteen member countries of the Common Market for Eastern and Southern Africa (COMESA) region. The one-step Generalized Method of Moments (GMM) difference estimator is used to estimate a dynamic panel of GDP per capita model. The results show that remittances from abroad exerts a positive and statistically significant impact on the GDP per capita in the COMESA region. Additionally, the absorptive capacity has a positive impact on growth and a positive effect on the ability of the COMESA region to absorb and benefit from the spillovers of remittances. The finding suggests that the region should strive to lower the costs of sending remittances, remove barriers to entry to the remittances market, introduce efficient technology systems and install tax or exemption schemes so as to redirect the uses of remittances to more productive sectors of the economy. The absorptive capacity of the region should also be improved so as to raise GDP per capita levels. (179 words).
Highlights
Economists, policy analysts and researchers have accorded considerable attention to the relationship between economic growth and remittances in developing countries
The data on workers’ remittances from abroad, domestic investment, openness of the economy, financial sector development are obtained from the World Development Indicators published by the World Bank while the data on the quality of institutions of regulations, rule of law and order and control of corruption are obtained from the World Governance Indicators prepared by the World Bank Institute
The data on human capital development from the Human Development Index report prepared by the United Nations Development Programme (UNDP), while data on the quality of overall infrastructure is obtained from the Global Competitiveness Report published by the World Economic Forum
Summary
Economists, policy analysts and researchers have accorded considerable attention to the relationship between economic growth and remittances in developing countries. The COMESA region realized an average GDP per capita growth rate of 1.90% per annum during the same period, many member countries of the region are the fastest growing in Africa (International Monetary Fund, 2015). The growth impact of the increased remittances in the region is not well known This is because few studies have been conducted in the region and other previous regional empirical studies carried out omit many COMESA countries from their analysis. They include Chami et al (2005) who omitted Burundi, Ethiopia, Kenya, Malawi, Mauritius, Uganda and Zambia from analysis of growth effects. Catrinescu et al (2009), Jongwanich (2007) and
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