MIGRANT’S REMITTANCES AND ECONOMIC GROWTH IN SUB … · developmentalist optimism of the 1950s...

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INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS

COPY RIGHT © 2013 Institute of Interdisciplinary Business Research 534

FEBRUARY 2013

VOL 4, NO 10

MIGRANT’S REMITTANCES AND ECONOMIC GROWTH IN SUB SAHARAN

AFRICA: EVIDENCE FROM NIGERIA, GHANA AND SOUTH AFRICA

Author names and Affiliations,

Kanu , Success Ikechi (B.sc, PGD, MBA, M.sc, ACIPM) ( Corresponding Author)

Department of Management technology, Federal university of technology,

Owerri, Imo State, Nigeria

Ozurumba, Benedict Anayochukwu (PHD)

Department of Management technology, Federal university of technology,

Owerri, Imo State, Nigeria

Abstract

This paper is an attempt to investigate the impact of migrant‟s remittances on economic growth in sub

Saharan Africa with special reference to Nigeria, Ghana and South Africa. Two hypotheses were

formulated to guide the study. Data was collected via a secondary source and E-views software package

was used to analyze the data collected. Migrant‟s remittances were found to have impacted positively on

the economic growth of the aforementioned economies. It was revealed that the greatest impact was on

South Africa, followed by Ghana and Nigeria. In terms of causality relationships, migrant‟s remittances are

seen to granger cause economic growth in South Africa and Ghana, though the impact was felt more in

South Africa than in Ghana. The situation was different for Nigeria, where economic growth was seen to

granger cause migrant‟s remittance. The above findings and conclusions informed the following

recommendations: There is need for prudence in the management of funds sent home by migrants. Such

monies are expected to be channeled into productive ventures and not for profligacy. To reap the full

benefits of improved migrant‟s remittances, Sub Saharan Africa must create an investment climate that is

alluring to Africans in the diaspora. Migrants are encouraged not only to remit more funds but to transfer

the acquired knowledge and technologies back home. They are also expected to set up cottage industries in

their home countries for the teeming unemployed youths. Lastly, there is equally the need for Sub Saharan

economies to rely more on domestic rather than on foreign capital inflows (Be it official or private inflows)

for their economic growth.

Keywords: Human capital flight, Brain Drain, Migrant‟ Remittances, Economic Growth, Economic

development,

1.0 Introduction

Migrant‟s economic remittance is an important and growing source of foreign funds for several developing

countries. At present, these inflows have more than doubled the official aid received by developing

countries. If remittances sent through informal channels are included, then total remittances

could be as much as 50 percent higher than the official record (World Bank 2010, IMF 2009).

In 2010, officially recorded remittances to developing countries reached $334 billion (World Bank 2010).

For many developing countries; remittances constitute a large source of foreign income relative to other

financial flows. Remittances are largely personal transactions from migrants to their friends and families;

they tend to be well targeted to the needs of their recipients. Their ability to reduce poverty and to promote

human development is well documented and often reported as beneficial to overall development (Ratha

2007).

At the macro-economic level, the relationship between economic growth and remittance receipts has come

under renewed scrutiny. Although the empirical evidence on the impact of remittances on economic growth

appears to be mixed, it is nonetheless recognized that, since remittance flows are used either to increase

consumption or investment, they have the potential to become an important tool for economic development

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(Fayissa and Nsiah 2008, Ratha 2007). More recently, it has been noted that “a significant portion of

remittance flows are used to service debt, and increase foreign exchange reserves” (Das and Serieux 2010).

In other words, migrant‟s remittances can also be used to cushion the impact of external economic shocks

Migrant‟s remittances to the developing economies in the past 15 years have grown by about six folds,

from $56 billion in 1995 to $334 billion in 2010. Given its size and stability as well as their countercyclical

behavior in the face of external shocks, recent policy attention has focused on mobilizing remittances to

leverage growth and poverty dividends as well as utilizing it to cushion the impact of economic shocks.(

World Bank :2010)

There has been a growing debate on how the often voluminous migrant remittances are used and to what

extent they contribute to the development of the migrant's country of origin (Ratha 2003, World Bank

2008).

It is against this backdrop that this study will seek to analyze how much of these inflows were actually

attracted to the sub-region and to ascertain if the resurgence in remittances has helped to ameliorate the

grave negative impact inflicted on the sub region by the mass exodus of her best of brains to the western

world.

1.1 Statement of research problem

Human capital flight, more commonly referred to as "Brain drain", has cost the African continent over $4

billion in the employment of over 150,000 expatriate professionals annually (World Bank: 2010).

According to a United Nations Development Program, "Ethiopia lost 75 per cent of its skilled workforce

between 1980 and 1991 to brain drain,”. This phenomenon has impacted negatively on the ability of

nations to get out of poverty. Nigeria, Kenya and Ethiopia are believed to be the most affected in Sub

Saharan Africa. It is estimated that up to 68% of Ghana‟s trained medical staff left between 1993 and 2004,

to work abroad. South Africa too, is not left out in the brain drain saga. The loss of returns from

investment on all doctors emigrating from South Africa was put at $1.41bn (World Bank). One can

unequivocally say that brain drain has despoiled Sub Saharan Africa to an unimaginable height!

On the flip side of this discuss is a phenomenon, that could aptly be tagged „‟ A paradox of the brain drain

saga‟‟ -There has been an appreciable increase in the amount of funds remitted from the developed

economies to Sub Saharan Africa via migrants remittances. It has been argued that the negative impact of

brain drains could be offset by the higher remittances sent in by skilled migrants. That is a pointer to the

fact that Africans in the diaspora have not forgotten their father land. They have woken up from slumber,

having settled down to work and make money in their respective new countries of residence.

Nigerians living abroad are estimated to have remitted home N1.727 trillion ($11 billion), the highest for

any African country, says a World Bank report. This figure, made Nigeria the Seventh biggest recipients of

money remitted to the home countries by citizens living abroad. The report titled Outlook for Remittance

Flows 2012-14, shows that “the top global recipients of remittances, estimated for 2011, are India ($58

billion), China ($57 billion), Mexico ($24 billion) and the Philippines ($23 billion). Other large recipients

include Pakistan, Bangladesh, Nigeria, Vietnam, Egypt and Lebanon.” The report further said

that: “Remittance flows to developing countries are expected to total $351 billion in 2011, and worldwide

remittances, including those to high-income countries, will reach $406 billion in 2011, according to a

newly updated World Bank brief.

Again, despite the global economic crisis that has impacted on private capital flows, remittance flows to

developing countries have remained resilient, posting an estimated growth of 8 percent in 2011,” (Word

bank 2010).

http://en.wikipedia.org/wiki/United_Nations_Development_Programme

http://en.wikipedia.org/wiki/South_Africa

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Chart 1: Migrant’s Remittance inflows: Nigeria, Ghana and South Africa (1980-2010)

Source: Graph plotted from data obtained from World Development Indicators (World Bank)

In spite of the increased inflow of migrants remittances to Sub Saharan Africa, the sub region is still

characterized by low per-capita income, high unemployment rates, dwindling economies and low and

falling growth rates of GDP; problems which foreign capital inflows and investments are theoretically

supposed to solve. It is against this background that this study will seek to analyze how much of these

inflows were actually attracted to the sub-region, the usage to which the inflows were put and the direction

and significance of the effects of migrants remittance on economic growth in Sub Saharan Africa.

2.0 Literature Review

What is Economic Migrants Remittance

Simply put economic migrants remittance is a transfer of money by a foreign worker or migrant to his or

her home country. Money sent home by migrants constitutes the second largest financial inflow to many

developing countries. Remittances contribute to economic growth and to the livelihoods of people

worldwide. Moreover, remittance transfers can also promote access to financial services for the sender and

recipient, thereby increasing financial and social inclusion. Remittances also foster, in the receiving

countries, a further economic dependence on the global economy instead of building sustainable, local

economies (Englama: 2009).

2.1 Theoretical framework on Economic Migrants Remittances

Theories on remittances had been based on pessimistic and optimist views as they varied from the

developmentalist optimism of the 1950s and 1960s to the large scale Pessimism which prevailed in the

1970s and 1980s to the optimism of the 1990s. A plethora of theories have been enunciated to explain the

concept of migration and Migrant workers‟ remittances. The theories include:

(1) Classical theory, (2) Neoclassical theory, (3) Structuralist and dependency theories, (4) Neo Marxist

theory

(5) New Economics of labor Migration (NELM) and livelihood approaches. (6) Social Network theory, (7)

Theory of pure altruism, (8) Theory of self interest, (9) Theory of informal contracts of insurance and (10)

Portfolio diversification theory. (Englama: 2009). The theories are briefly discussed below:

2.1.1Classical theory. This theory states that large scale capital transfer and industrialization to poor countries would move their

economies towards rapid economic development and modernization. Migration leads to a North-South

transfer of investment capital and accelerates the exposure of traditional communities to liberal, rational

and democratic ideas, modern knowledge and education.

http://en.wikipedia.org/wiki/Wire_transfer

http://en.wikipedia.org/wiki/Migrant_worker

http://en.wikipedia.org/wiki/Developing_country

http://en.wikipedia.org/wiki/Financial_service

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2.1.2 Neoclassical Theory

This theory postulated that unconstrained labor migration would lead to scarcity of labor, resulting in a

higher marginal productivity of labor and increasing wage levels in migrants sending societies. Capital

flows including remittances are expected to go in exactly the opposite direction as labor migration until the

developmental role of migration is entirely realized

2.1.3 Structuralist and Dependency Theories The theory states that migration would result in dependency on the global political economic systems

dominated by the powerful (Western) states. Migration was seen as having ruined traditional peasant

societies by undermining their economies and uprooting their populations. .Not only is migration

detrimental to the economies of underdeveloped countries, but also as the very cause of “development of

underdevelopment”.

2.1.4 Neo-Marxist Theory

The theory states that migration and remittances produce and reinforce the capitalist system based on

inequalities. Migration and remittances were seen as detrimental as exposure to wealth of migrant families

causes a change in local taste that increases the demand for foreign goods.

2.1.5 New Economics of labor Migration (NELM) and Livelihood Approaches.

This approach models migration as the risk-sharing behavior of households. Individuals and households

seem able to diversify resources such as labor in order to minimize income risks. Family members are

stated to implicitly enter into a co-insurance agreement whereby the family invests in members to allow

them to migrate, but however expect a return on this investment from the migrants through repayment of

the cost incurred by the migration and assistance they may require(Englama:2009).

2.1.6 Social Network Theory

The social network theory emphasizes the social rather than the economic role that remittances play in the

lives of the migrants and their families. Remittances are seen as resources which are exchanged between

members of a social network. A social network is defined as a set of recurrent association between groups

of people linked by occupational, familial, cultural or affective ties. Resources are deemed transferred to

the social network when a migrant sends remittance. Based on the following, transfer maybe reciprocal as

the migrant is accumulating social obligation from the people to whom they remit in the form of child care,

transfer of goods with traditional or sentimental value, the migrant remitting maybe conforming to moral

values learnt as being a member of the group. Remitters increase their social visibility in the sending and

receiving countries, in addition to avoiding the sanctions by the social group if they do not remit. (Englama:

2009)

2.1.7 Theories of Motives for Migrant’s Remittance.

Theory of Pure Altruism: This theory states that migrants remit money simply because they care about

the well being of the family members by providing them with additional income.

Theory of Self Interest: Migrants send money home to increase their visibility hence eligible for

inheritance, esteem or other resources in the community of origin.

Theory of Informal Contracts of Insurance: Migrants remit money to their kiths and kin to avert

temporary “shocks”. Thus the families of the migrant in the home country are able to „‟smoothen‟‟ their

consumption pattern.

Portfolio diversification Theory: This theory states that the decision to remit is sometimes influenced by

the offer of a risk-return option to be weighed against local sources of income. Consideration for interest

rate differential on comparable deposit account offered in host and home countries, black market exchange

premium, the return on real estate in the home country, inflation rates and other returns.( Englama:2009)

On the flip side of this discuss is economic growth. We will quickly take, more than a cursory look at this

concept.

2.2 What is economic growth?

Economic growth generally, can be described as a positive change in the level of production of goods and

services by a country over a certain period of time. In other words, economic growth is the increase in the

value of goods and services produced by an economy. It can also be referred to as the increase in the gross

domestic product. It is a relatively straight forward measure of output and gives an idea of how well off a

country is, compared with competitors and past performance. It is a beacon that helps policy makers steer

the economy towards key economic objectives. Finally, it is a measure of the wellbeing of a state; usually

in real terms, all other things being equal (Enu: 2009)

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2.2.1 Economic Growth versus Economic Development

It is useful at this stage to distinguish carefully between the concept of economic growth and economic

development. Although both concepts are often used interchangeably, they do not necessarily refer to the

same thing. While growth refers to the volume of output in the current year vis- a –vis the volume of output

in a chosen previous year, it overlooks the distribution to and hence the well being of the citizens in the

economy. In contrast the concept of economic development is more embracing for it not only concerns

itself with issues of growth but also focuses on the distribution of proceeds of growth. Thus economic

development is generally defined to include improvements in material welfare especially for persons with

lowest incomes, the eradication of mass poverty with its correlates of illiteracy, diseases and early death,

changes in composition of inputs and outputs that generally include shifts in the underlying structure of

production away from agricultural towards industrial activities (Kindleberger and Herrick:1997).Thus the

concept of economic development connotes an entire transformation, bringing in its wake an overall

improvement in the well being of the entire citizenry. (Anyanwu andOiakhenan: 1995)

2.2.2 Measurement of economic Growth: In discussing economic growth three strands of the measure of

growth can be deciphered. They are the measurement of Growth from nominal perspective 2) Growth

defined from real magnitudes and (3) Growth measured in terms of per capita values.

2.2.3 Sources of economic growth

In accounting for an economy‟s growth, it is conventional to relate the level of output to its factor inputs.

This permits us to write our production function as follows,

Y= f (K, L, D, E)

This function states that the output(Y) is a function of capital (k), Labor (L), Land (D) and entrepreneurship

(E).

2.3 Theoretical framework on Economic growth

Various theories on economic growth have been enunciated, each purporting to explain the mechanics of

growth. Some of these theories include: (i) Classical Growth Models, (ii) Marxian theory of growth (iii)

Rows tow‟s stages of growth theory (iv)Keynesian Growth Model( Harold- Domar growth model), (v)

Neoclassical Growth Model and (vi) Endogenous Growth Model .

2.3.1 The classical Theory of Growth

The classical theory of growth assigns to the rate of investment the responsibility for fostering growth,

itself a function of the share of profits in the national income. A positive relationship between both

variables is deemed to exist hence higher rates of profit is deemed to result in higher rates of growth via its

positive effect on the rate of investment.

Classical economists like Adam Smith, David Ricardo, and J.S Mill were the exponents of this theory of

growth. In what could be described as a self limiting theory they argued that the increased division of labor

and hence specialization made possible by increases in the growth rate of capital would result in increases

in both profit and wages. However, an increase in both profit and wages would in turn trigger off

population expansion which is the course of growth of capital and labor overtime would result in

diminishing returns consequent upon the fixity of land.

2.3.2 Marxian Theory of Growth

The Marxian theory of growth is a historical theory of economic growth. It is an admixture of reasoning

proceeding from economics and sociological perspectives .The theory proceeds by viewing growth as a

process of continuous transformation of a society‟s social cultural and political life. Such transformation

can be traced to the society‟s mode of production as well as property rights of the society‟s economic

power and prestige seeking class. Marxian growth theory asserts that growth is dependent on the rate of

accumulation of labor surplus value by the capitalist class, labor surplus value being the rate of profit in

excess of labor‟s true remuneration which has however been expropriated from the workers by factor

owners (capitalists).

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2.3.3 Rostow’s Stages of Growth Theory

This theory of growth as postulated by W.W. Rostow is a historical account of the processes of economic

growth. Rostow posits that all countries of necessity pass through five stages in the process of growth.

These stages are:

The traditional society characterized by economic decision making on the basis of customs, tradition and

obligations

The precondition for takeoff stage is characterized by advances in Agriculture and jettisoning of

uneconomic culture as well as the emergence of an entrepreneurial class.

The take off stage, characterized by increased rate of saving emergence of leading sectors which helps to

pull along other sectors contributing thereby to the realization of sustained growth.

The stage of drive to maturity is characterized by the consolidation of industrial revolution. Moreover,

within this stage the other sectors catch up with the leading sectors and the economy, having attained the „‟

critical minimum speed to be airborne in the growth process in stage three actually becomes airborne in this

stage of growth=

Stage of high mass consumption. In this stage of growth, an economy is deemed to have matured, making it

possible for the citizens to enjoy appreciable levels of living standards.

2.3.4 Keynesian Growth Model

Keynesian growth theory is mainly connected with Roy. F. Harrod (1939) and Evsey Domar (1946). These

neo-Keynesian economists tried independently to dynamize Keynesian theory. The theory is based on the

active role of money, the principals of effective demand and on the saving function respectively, the

transition of saving to investments and multiplication effect. In his scientific work Harrod (1939) started

from the accelerator principle and Domar (1946) started from the multiplication effect. Despite the different

approaches, they came to the same conclusion that the rate of growth of output is determined jointly by the

national savings ratio and national capital output ratio. In economic literature their theory appears as

Harrod-Domar Keynesian theory of growth or simply, Harrod-Domar growth model (Anyanwu and

Oikhenan: 1995)

2.3.5 Harrod – Domar Growth Model

The Harrod-Domar growth model shows through a mathematical equation, the existence of a direct

relationship between savings and the rate of economic growth. The model, which attempts to integrate

Keynesian analysis with the element of economic growth, assumes that economic growth is a direct result

of capital accumulation in the form of savings. In addition, the Harrod-Domar growth model assumes a

fixed coefficient production function and constant returns to scale. ( Enu: 2009).

2.3.6 Neo-Classical Growth Model

This model assumes that countries use their resources efficiently and that there are diminishing returns to

capital and labor increases. From these two premises, the neoclassical model makes three important

predictions. First, increasing capital relative to labor creates economic growth, since people can be more

productive given more capital. Second, poor countries with less capital per person will grow faster because

each investment in capital will produce a higher return than rich countries with ample capital. Third,

because of diminishing returns to capital, economies will eventually reach a point at which any increase in

capital will no longer create economic growth. This point is called a "state”. The model also notes that

countries can overcome this steady state and continue growing by inventing new technology.

2.3.7 Ramsey Model: A refinement of Solow-Swan Model

One of the key features in Ramsey‟s model is the assumption that households optimize their utility over

time. This assumption importantly makes the model dynamic. Using Ramsey‟s model as their starting

point, Cass (1965) and Koopmans (1965) recast the saving rate that is exogenous under Solow-Swan model

as endogenous. Even though this is considered a refinement of the neoclassical growth model, it does not

eliminate the dependence of the long-run growth rate on exogenous technological progress. The works of

Cass and Koopmans (1965) mark the end of the basic neoclassical growth model era ( Enu: 2009).

http://en.wikipedia.org/wiki/Efficiency_(economics)

http://en.wikipedia.org/wiki/Diminishing_returns

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2.3.8 Endogenous Growth Model

The first ideas of new endogenous growth theory appeared in Paul M. Romer‟s work on the “Increasing

Returns and Long-Run Growth” in 1986 and Robert E. Lucas‟ work on the “Mechanics of Economic

Development” in 1988. Unsatisfied with Solow's explanation, economists worked to "endogenize"

technology in the 1980s. They developed the endogenous growth theory that includes a mathematical

explanation of technological advancement. This model also incorporated a new concept of human capital,

the skills and knowledge that make workers productive. Unlike physical capital, human capital has

increasing rates of return. Therefore, overall there are constant returns to capital, and economies never

reach a steady state. Growth does not slow as capital accumulates, but the rate of growth depends on the

types of capital a country invests in. Research done in this area has focused on what increases human

capital (e.g. education) or technological change (e.g. innovation).

2.4 Empirical review on migrant’s remittances and economic growth

According to Quartey and Blankson (2004), migrant worker‟s remittances have been a means of survival

for many Ghanaians, particularly in times of macroeconomic shocks. This pseudo panel study tried to

ascertain if migrant remittances have been a source of income smoothing in Ghana, particularly in times of

macro-volatility. It was found that migrant remittances are counter-cyclical in Ghana; inflows of

remittances increase in times of economic shocks. Secondly, remittances significantly affect household

welfare and therefore tend to reduce any economic shock that affects household income and consequently

welfare. The study also found that, remittances are the main coping mechanisms for this group of

households in times of economic shock.

Addison (2004), writing on the macroeconomic impact of remittances on the Ghanaian economy posits that

that the level of private unrequited transfers increased significantly from US$201.9 million in 1990 to

US$1,017.2 million in 2003. Total transfers did increase from just over US$410 million to US$1,408.4

million over the same period reflecting mainly the increase in private unrequited transfers. The study also

found that private transfers are much bigger and more stable than Official Development Assistance (ODA)

and Foreign Direct Investment (FDI) over the period 1990 - 2003. Also remittances have been increasing

more than proportionately compared to GDP and exports earnings.

Van Dalen, Groenwold, and Fokkema (2005), analyzed on the basis of the data of World Bank (2004),

remittances received by less developed countries totaled US$93 billion in 2002. In a comparative study of

74 less developed countries, remittances have a strong impact on reducing poverty. A common explanation

was that migrants care for the spouses, children, parents, and other members of the extended family left

behind.

Xenogiani et al, (2006) noted that, a further major impact of migration on development comes through

remittances which are sent by migrants to families and relatives who have remained in their country of

origin. Both the labor supply eventually and the transfer shock affect poverty and growth directly through

substitution and income effects and indirectly through productivity changes.

Kofman (2008) was of the opinion that international migration has profound impacts on family members

left behind. In the majority of the observed cases, women, along with their children, experienced an

increase in their standard of living as a result of the remittances sent by their emigrant husbands. However,

this increase varied significantly from one household to another

Adams and John (2008) analyzed that the „Remittances, Consumption, and Investment in Ghana‟ affects

the marginal spending behavior of households on a broad range of consumption and investment goods,

including food, education and housing.

According to Abdul Azeez and Begum (2009), migration has been an important issue in human history. In

recent years, the pace of international migration has been phenomenal due to trade liberalization,

deregulation of restrictive measures and the development of transportation facilities, communication

network and global cultural integration. The remittances from migrants working abroad are important for

both families of migrants and the balance of payment of their home country. While remittances contribute

http://en.wikipedia.org/wiki/Endogenous_growth_theory

http://en.wikipedia.org/wiki/Human_capital

http://en.wikipedia.org/wiki/Physical_capital

http://en.wikipedia.org/wiki/Steady_state_economy




http://en.wikipedia.org/wiki/Education

http://en.wikipedia.org/wiki/Innovation

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significantly to the welfare of the migrant households, it also has a considerable impact on GDP as well as

foreign exchange earnings of developing countries.

Brempong and Asiedu (2011), posits that international migrant remittances to Less Developed Countries

(LDCs) have been increasing in importance relative to other transfers. In their paper titled „‟Remittances

and poverty in Ghana‟‟, they investigated the effects of international remittances on poverty incidence and

severity in Ghana. They found that international remittances decrease the probability of a family being poor

or chronically poor.

Lastly, the World Bank (2011) has argued that given the growing importance of remittances as a source of

PCF, these flows could potentially become an important tool for economic development, especially if they

can be channeled into productive investment

2.5 A critique of related works and consequent research gap

The relationship between migrant‟s remittances and economic growth in developing countries has attracted

a plethora of studies. Up to date, the empirical evidence of the impact of remittances on economic growth

appears mixed and is difficult to predict a priori. For instance, results for a sample of 39 developing

countries covering the period 1980–2004 indicate a positive impact on economic growth .(Pradhan et al.

2008).

Another study examining the aggregate impact of remittances on the economic growth of 18 Latin

American countries for the period 1980–2005 found that remittances positively and significantly affected

the growth of Latin American economies where the financial systems are less developed by providing an

alternative way to finance investment and helping overcome liquidity constraints (Fayissa and Nsiah 2010).

There were also similar results for 37 African countries within the same period.

However, in yet another related study by Louise and Clovis (2012), titled „„workers‟ remittances and

economic development in sub Saharan Africa‟‟, they confirmed the ambiguity observed in the literature

about the capacity of migrants remittances to give impetus to economic growth and development. Beyond

the fact that the coefficient associated with the migrants remittances variable in the poverty model is not

significant, the study results indicate that migrant‟s remittances do not contribute significantly to the

reduction of poverty

The outcomes of some of the empirical studies are as revealing as they are contradictory. The conflicting

empirical results could be traced to varying number of factors, chief amongst which is, the cross sectional

nature of most of the previous studies. Due to the unique characteristics of each country, it may not be

appropriate applying cross sectional results to policy formulation for individual countries. There is need for

more country specific case studies; that is a research gap that the present study intends to cover! The

conclusion is therefore trite that existing state of research shows conceptual weakness providing further

impetus for this study.

3.0 Research Methodology

3.1 Research Design

To ascertain the impact of migrant‟s remittance on the economic growth of Sub- Saharan Africa, with

emphasis on Nigeria, Ghana and South Africa, a least square regression analysis will be carried out on a

time series data. The essence will be to test the relationship between the variables whether positive or

negative and if significant or not (Elbadwi, 1992).

To avert the emergence of spurious results, a unit root test will be carried out in order to test for stationarity

and to determine the order of integration. While a co integration test will be carried out to detect if there

exists a long run relationship between migrants inflows and economic growth in the sub Saharan

economies. A least square method will be used to test the stated hypothesis.

3.2 Data collection

The data for our estimation was generated from the websites of the World Bank, UNCTAD, Economy

Watch and various publications from the Central Bank of Nigeria, Bank of Ghana and the Reserved Bank

of South Africa for the period 1980-2010. (See Appendix 1, 2 and 3).

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4.0 Data Analysis

Data estimation: Unit root tests A unit root test was conducted using the Augmented Dickey Fuller test to guard against spurious

relationships.

Table 1: Summary of Augmented Dickey Fuller Unit Roots Test

NIGERIA

GHANA

SOUTH AFRICA

VARIABLES T-Statistic Critical

Value@

5%

Level T-Statistic Critical

Value@

5%

Level T-Statistic Critical

Value@

5%

Level

EMR -6.185448 -2.971853 2nd level -4.613543 -2.998064 2nd

level

-4.617270 -2.998064 2nd

level

EXCHR -8.836527 -2.971853 2nd level -8.543100 -2.971853 2nd

level

-6.421979 -2.971853 2nd

level

INFL -4.500432 -2.991878 2nd level -16.96532 2.971853 2nd

level

-5.182822 -2.991878 2nd

level

LBF -5.725995 -2.986225 2nd level -5.885007 -2.998064 2nd

level

-6.207999 -2.986225 2nd

level

OPN -6.778528 -2.976263 2nd level -8.343476 2.971853 2nd

level

-6.472027 -2.991878 2nd

level

Computed with e-views version 7

The Unit root tests were significant at 2nd

level. Since all the calculated Dickey fuller test statistics are less

than 5 % critical values (for the variables), we reject the null of non stationarity.

Results of a co- integration test conducted on the variables indicate the existence of a relationship between

migrant‟s remittances and economic growth in the aforementioned economies.

4.1 Regression Analysis

Model Specification: Specifically, we have

RPCGDP = Real per capita Gross Domestic product.

EMR = Economic Migrants Remittances.

OPN = Degree of trade openness to the outside world.

LBF = Labor force

EXCHR= Exchange rate

INFL = Inflationary rates

Thus, the functional form is given as:

RPCGDP= f (EMR, OPN, LBF, EXCHR, INFL).

Mathematically, we have the regression equations as:

RPCGDP= F (EMR, OPN, LBF, EXCHR, INFL).

RPCGDP = β0 + β1EMR + β2 OPN + β3 LBF + β4 EXCHR + β5 INFL + e

For each of the three countries under review, their individual mathematical expressions are represented

thus:

NIGERIA: NRPCGDP = β0 + β1NEMR + β2 NOPN + β3 NLBF + β4 NEXCHR + β5 NINFL + e

GHANA: GRPCGDP = β0 + β1GEMR + β2GOPN + β3 GLBF + β4 GEXCHR + β5 GINFL + e

SOUTH AFRICA: SRPCGDP = β0 + β1SEMR + β2 SOPN + β3 SLBF + β4 SEXCHR + β5 SINFL + e

Where β1, β2, β3, β4, and β5 are > 0 and „‟e‟‟, representing the unexplained variation encountered in the

model

Hypothesis

H01: There is no significant relationship between Migrant‟s remittances and economic growth in Nigeria,

Ghana and South Africa.

H02: There is no causality relationship between Migrant‟s remittances and economic growth in Nigeria,

Ghana and South Africa.

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4.2 Hypothesis Testing

Decision Rule

Table.2: Result of the Global statistics and model selection Criteria for Nigeria, Ghana and South

Africa

Test Statistics Nigeria Ghana South Africa

R-Square 0.868750 0.938971 0.927561

Adjusted R-Square 0.842501 0.926765 0.913074

S.E. of Regression 24.62290 12.10190 78.23612

Sum of squared Residuals 15157.18 3661.399 153022.3

Log likelihood -139.9669 -117.9471 -175.8045

F-Statistics(calculated) 33.09538 76.92761 64.02392

Prob(F-Statistics 0.000000 0.000000 0.000000

Mean Dependence Var. 381.4839 251.2581 3246.613

SD dependence Var. 62.04400 44.71910 265.3576

Akaike Info Criterion 9.417217 7.996587 11.72933

Schwarz Criterion 9.694762 8.274133 12.00687

Hannan-Quinn criter 9.507690 8.087060 11.81980

Durbin-Watson stat 0.813694 0.588042 1.338465

C coefficient -195.1950 360.0943 6594.764

EMR 0.013282 0.998146 1.140297

EXCHR 0.193851 0.354354 -16.67835

INFL 0.108724 -3.092153 6.072629

LBF 9.501924 0.009278 -72.04696

OPN 0.464647 -0.039714 13.36413

F-statistics -Tabulated @5% 2.59 2.59 2.59

F-statistics -Tabulated @ 1% 3.82 3.82 3.82

Results as obtained from E-Views version 7

Table 2 above shows the results of the global statistics on the relationship between migrant‟s remittances

and economic growth in Nigeria, Ghana and South Africa.

F-test was used to test the overall significance of the explanatory variables taken together, while the student

t-test was used to test for the significance of each explanatory variable. The coefficient of determinations

(R2) was used to test for goodness of fit of the study.

4.3 Analysis of variance (ANOVA) In order to confirm the specification status of the above highlighted models, we employ the analysis of

variance or ANOVA for short.

Decision Rule

Employing the e-views software, since F- calculated at 0.95 is (33.09, 76.92 and 64.02) respectively for the

Nigeria, Ghana and South Africa models respectively; F- tabulated is 2.59 @ 5% and 3.82 @ 1%. Thus we

reject H0 for hypotheses 1 and conclude that migrant‟s remittances have a significant relationship with

economic growth in Nigeria, Ghana and South Africa. The models obtained herein can be used for

meaningful analysis and decision making

1) The relationship between Migrants remittances and economic growth in Nigeria posted an R-Square of

86.87 %, adjusted R-square of 84.25 %. This gave rise to the model

NRPCGDP = - 195.19 + 0.013 NEMR +0.46NOPN + 9.5 NLBF + 0.19 NEXCHR + 0.108 NINFL

……Eq 1

2) The relationship between Migrants remittances and economic growth in Ghana posted an R-Square of

93.89 %, adjusted R-square of 92.67 %. This gave rise to the model

GRPCGDP = 360.09 + 0.99GEMR – 0.039GOPN + 0.009GLBF+ 0.354GEXCHR - 3.09 GINFL

… .Eq 2

3) The relationship between Migrants remittances and economic growth in South Africa posted an R-

Square of 92.76 %, adjusted R-square of 91.30 %. This gave rise to the model

SRPCGDP = 6594.76 +1.14SEMR +13.36SOPN -72.05 SLBF – 16.68 SEXCHR +6.07SINFL

….Eq 3

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One of the major contributions of the present study therefore is that it is possible from these models of

equation 1, 2 and 3, to predict the level of economic growth in any of the aforementioned countries, given

that levels of migrant‟s remittances are known.

4.4 T-STATISTICS - NIGERIA, GHANA AND SOUTH AFRICA

Having tested the significance of the above models, we go a step further to test the significance of

economic migrant‟s remittance and other control variables that contributed to the total variations in

economic growth of the aforementioned countries. This is achieved through the student t-test.

Table 3: Test of significance of explanatory variables- Nigeria

Variable

Test

statistics

NEMR

Migrants

Remittance

NEXCHR

Exchange

Rate

NINFL

Inflation NLBF

Labor force NOPN

Degree of trade

openness

Coefficient of the

variable

0.013282 0.193851 0.108724 9.501924 0.464647

Standard Error 0.002092 0.218663 0.264999 12.52323 0.441436

T-statistic Calculated 6.350537 0.886529 0.410280 0.758744 1.052579

T-Statistic tab@ 5% 2.06 2.06 2.06 2.06 2.06

T-Statistic tab@1% 2.78 2.78 2.78 2.78 2.78

Significance Significant Not significant Not significant Not significant Not significant

Results as obtained from E-Views version 7.

Table 3 shows that only one out of the five explanatory variables i.e. migrants remittance exerts a

significant effect on economic growth in Nigeria, while exchange rate, inflationary trends, labor force and

degree of trade openness turned out to be insignificant contributors to economic growth in Nigeria.

Table 4: Test of significance of explanatory variables- Ghana

Variable

Test

statistics

GEMR

Migrants

Remittance

GEXCHR

Exchange

Rate

GINFL

Inflation GLBF

Labor force GOPN

Degree of trade

openness

Coefficient of the

variable

0.998146 0.009278 -0.039714 -3.092153 0.354354

Standard Error 0.144123 0.025480 0.102927 4.146088 0.178074

T-statistic Calculated 6.925655 0.364140 -0.385848 -0.745800 1.989927

T-Statistic tab@ 5% 2.06 2.06 2.06 2.06 2.06

T-Statistic tab@1% 2.79 2.78 2.78 2.78 2.78

Significance Significant Not significant Not significant Not significant Not significant


The Ghanaian model equally replicated the scenario obtainable under the Nigerian model as only one out of

the five explanatory variables i.e. migrants remittance exerted a significant effect on economic growth in

Ghana, while exchange rate and degree of trade openness turned out to be insignificant. It is also note

worthy to mention here, that inflationary trends and labor force impacted negatively on the general model,

but their contributions were insignificant to the economic growth of Ghana.

Table 5: Test of significance of explanatory variables- South Africa

Variable

Test

statistics

SEMR

Migrants

Remittance

SEXCHR

Exchange

Rate

SINFL

Inflation SLBF

Labor force SOPN

Degree of trade

openness

Coefficient of the

variable

1.140297 -16.67835 6.072629 -72.04696 13.36413

Standard Error 0.104399 16.30314 6.050423 19.09256 2.279567

T-statistic Calculated 10.92249 -1.023015 1.003670 -3.773563 5.862574

T-Statistic tab@ 5% 2.06 2.06 2.06 2.06 2.06

T-Statistic tab@1% 2.79 2.78 2.78 2.78 2.78

Significance Significant Not significant Not significant Negatively

Significant

Significant

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Table 5 above indicates that only two out of the five explanatory variables i.e. migrants remittance and

degree of trade openness exerted a significant positive effect on economic growth in South Africa. While

the other variables turned out to be insignificant contributors, labor force exerted a negative impact on the

economic growth of South Africa. The ageing workforce occasioned by massive deaths of the middle aged

workforce as a result of HIV/ AIDS pandemic lays credence to this assertion.

4.5 Granger causality Test

The study also employed the Granger causality test to measure the precedence and information content of

the variables

Table 6: Pair wise Granger Causality Tests–Economic Migrants Remittance and Economic Growth

in Nigeria, Ghana and South Africa

Null Hypothesis Observation F-statistic Prob Nigeria

NRPCGDP does not Granger Cause NEMR 29 5.08156 0.0144

NEMR does not Granger Cause NRPCGDP 0.56695 0.5747 Null Hypothesis Observation F-statistic Prob

GHANA

GRPCGDP does not Granger Cause GEMR 29 0.80963 0.4568

GEMR does not Granger Cause GRPCGDP 3.27659

0.0552

Null Hypothesis Observation F-statistic Prob

South Africa

SRPCGDP does not Granger Cause SEMR 29 0.09480 0.9099

SEMR does not Granger Cause SRPCGDP 6.23015

0.0066

Computed with e-views statistical package

From table 6 above, it could be seen that real per capita GDP granger causes migrant‟s remittances into

Nigeria. While Migrants remittances are seen to granger cause economic growth in Ghana and South

Africa. The impact is felt more in South Africa than in Ghana. 5.0 Discussion of results

Migrant‟s remittances were found to have impacted positively on the economic growth of Nigeria, Ghana

and South Africa. It was revealed too, that the greatest impact was on South Africa, followed by Ghana and

Nigeria. In terms of causality relationships, migrant‟s remittances are seen to granger cause economic

growth in South Africa and Ghana, though the impact was felt more in South Africa than in Ghana. The

situation was different for Nigeria, where economic growth was seen to granger cause migrant‟s remittance

A comparative analysis of the global statistics shows that the explanatory variables explained about 93% of

the total variation in Ghana, about 92.7% in South Africa and 86.8% in Nigeria. F-ratio calculated is 76.92

under the Ghanaian model; comparable figures for South Africa and Nigeria are 64.02 and 33.09

respectively. The South African model posits a Durbin Watson statistic of 1.33; the comparable figures for

Nigeria and Ghana are 0.81 and 0.58 respectively. The South African model reveals -175.8 log likelihood,

while the comparable figures are -139.97 and -117.95 respectively for Nigeria and Ghana.

5.1 Conclusion

On the basis of our findings, the study therefore concludes that:

The three models are quite robust, but that the Ghanaian model has the strongest predictive power

compared to that of South Africa and Nigeria

5.2 Recommendation

The above findings and conclusions therefore inform the following recommendations

Africans in the diaspora are encouraged not only to remit more funds but to transfer the acquired

knowledge and technologies back home. They are also expected to set up cottage industries in their home

countries for the teeming unemployed youths.

Secondly, there is need for prudence in the management of funds sent home by migrants. Such monies are

expected to be channeled into productive ventures and not for profligacy.

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Thirdly, to reap the benefits of improved migrants remittances under a globalized world economy, Sub

Saharan Africa must create an investment climate that is alluring to foreign investors and Africans in the

diaspora .The necessary conditions according to ( Obadan 2005) includes:

Macroeconomic stability and consistent policies

Security of life and property

Political stability

A good investor orientation

Adequate infrastructures and

Transparent rules and regulations

Lastly, there is equally the need for sub Saharan economies to rely more on domestic rather than on foreign

capital inflows (Be it official or private inflows) for their economic growth.

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REFRENCES

Abdul-Aziz and Begum (2009): International remittances. A source of development finance: international

NGO journal Volume 4(5) pp299-304.

Abdul Waheed (2004) foreign capital inflows and economic growth of developing countries: A critical

survey of selected empirical studies. Journal of economic corporation 25 1(2004) pp1-26.

Addison (2004) The macroeconomic impact of remittance in Ghana. Directorate of Research, Bank of

Ghana

Anyanwu and Oikhekenan(1995): Modern Macro Economics , theory and application in Nigeria, Joanee

Publishers Onitsha

Das, A. and Serieux, J., 2010, „Remittances and Reverse Flows in Developing Countries‟, IDEAs Working

Paper Series, No. 02/2010.

Englama(2009) The economics of Remittances, theories and issues-Paper presented at a high level

Regional Seminar on International remittances for economic development-West African Institute

of Financial and Economic Management –Gambia.

Enu.P. (2009): Macroeconomic Determinants of economic growth in Ghana. An unpublished Master of Art

degree in Economics Thesis from the Kwame Nkrumah University of Science and Technology,

Kumasi, Ghana.

Fayissa, B. and Nsiah, C., 2008, „The Impact of Remittances on Economic Growth and Development in

Africa‟, Department of Economics and Finance Working Paper Series. M. Tennessee State

University.

Fayissa, B. and Nsiah, C., 2010, „Can Remittances Spur Economic Growth and Development? Evidence

from Latin American Countries‟, Department of Economics and Finance Working Paper Series,

Middle Tennessee State University

International Monetary Fund, 2009, „Do Workers‟ Remittances Promote Economic Growth?‟, International

Monetary Fund Working Paper, WP/09/153, Washington, DC.

Louise Clovis (2012) Workers remittance and economic development in Sub Saharan African countries-

International Research journal of finance and economics. Euro publishing incorporated 2012

Quartey and Blackson (2004) Do Remittance minimize the impact of macro- volatility on the poor in

Ghana. Institute of statistical, social and economic research (ISSER), University of Legon, Ghana

Pradhan, G., Upadhyay, M. and Upadhyaya, K., 2008, „Remittances and Economic Growth in Developing

Countries‟, the European Journal of Development Research, Vol. 20, No. 3.

Ratha, 2007, Leveraging Remittances for Development, Migration Policy Institute, World

Bank, Washington, DC

Solow, RM. (1956), A Contribution to the Theory of Economic Growth,” Quarterly Journal of Economics,

70 (1):

World Bank, 2010, „Outlook for Remittance Flows 2010-2011‟, Migration and Development Brief, World

Bank, Washington, DC.

World Bank, 2011, Migration and Remittances Fact Book, World Bank, Washington, DC World Bank- World Development indicators. (2012)

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Appendix 1: Nigeria’s Data set on Migrants Remittance, with the attendant dependent and control variables

(1980-2010)

Year NRPCGDP NEMR NOPN NLBF NEXCHR NINFL

1980 416 22 73.34 53 0.5 10 1981 352 16 71.4 53 0.6 20.8 1982 342 18 62.25 52 0.7 7.7 1983 316 14 70.32 52 0.7 23.2 1984 294 12 81.42 52 0.8 17.8 1985 314 10 79.32 52 0.9 7.4 1986 314 4 47.4 52 2 5.7 1987 304 3 54.34 52 4 11.3 1988 325 2 54.27 52 4.5 54.5 1989 340 10 56.59 52 7.4 50.5 1990 359 10 75.37 52 8 7.4 1991 366 66 85.68 52 9.9 13 1992 368 56 66.75 52 17.3 44.6 1993 367 793 95.82 52 22.07 57.2 1994 359 550 81.77 53 22 57 1995 359 804 89.59 53 21.9 72.8 1996 366 947 79.65 53 21.88 29.3 1997 367 1920 83.38 53 21.89 8.5 1998 366 1544 72.28 53 21.89 10 1999 361 1301 74.54 54 92.34 6.6 2000 372 1391.8 71.73 54 101.7 6.9 2001 374 1166.6 73.72 54 111.23 18.9 2002 371 1208.9 57.41 54 120.58 12.9 2003 399 1062.8 72.9 54 129.22 14 2004 431 2272.7 67.26 54 132.89 15 2005 443 3328.7 79.85 54 131.27 17.9 2006 459 5435 64.79 54 128.65 8.2 2007 476 9221 68.78 54 125.81 5.4 2008 492 9980 73.5 54 118.55 11.6 2009 514 9584.75 63.96 54 148.9 11.5 2010 540 10045.02 77.5 54 150.3 13.7

Source: World development Indicators (World Bank)

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Appendix 2: Ghana’s Data set on Migrants Remittance, with the attendant dependent and control variables

(1980-2010)

Year GRPCGDP GEMR GOPN GLBF GEXCHR GINFL

1980 242 0.9 53.74 51 2.75 50.1 1981 227 1.4 49.25 51 2.75 116.5 1982 204 1.5 37.86 52 2.75 22.3 1983 188 0.5 27.4 52 8.83 122.9 1984 197 4.7 29.6 52 35.99 39.7 1985 201 4.2 33.46 52 54.37 10.3 1986 205 0.6 31.08 52 89.2 24.6 1987 209 0.7 41.51 52 153.73 39.8 1988 215 6 42.72 53 202.35 31.4 1989 220 6 41.47 53 270 25.2 1990 221 6 42.29 53 326.33 37.3 1991 226 6.2 41.76 53 367.83 18 1992 228 7.3 47.14 53 0.04 10.1 1993 233 10.1 56.69 54 0.06 25 1994 234 15.7 62.24 54 0.1 24.9 1995 237 17.21 57.32 54 0.12 59.5 1996 242 27.5 59.24 54 0.16 46.6 1997 246 26 61.99 55 0.2 27.9 1998 251 29.5 82.73 55 0.23 14.6 1999 256 30.7 83 55 0.27 12.4 2000 260 32.4 116.34 56 0.54 25.2 2001 264 45.9 112.52 56 0.72 32.9 2002 269 43.52 95.56 56 0.79 14.8 2003 276 65.1 96.25 56 0.87 26.7 2004 285 82.37 99.04 57 0.9 12.6 2005 294 99.18 98.22 57 0.91 15.1 2006 305 105.25 65.64 57 0.92 10.9 2007 317 117.36 65.22 57 0.94 10.7 2008 336 126.1 68.84 57 1.06 16.5 2009 343 114.46 71.52 57 1.41 19.3 2010 358 135.85 72.62 58 1.43 10.7

Source: World development Indicators (World Bank)

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Appendix 3:

South Africa’s Data set on Migrants Remittance, with the attendant dependent and control variables (1980-

2010)

Year SRPCGDP SEMR SOPN SLBF SEXCHR SINFL

1980 3463 67.09 62.75 55 0.778 13.7 1981 3561 86.86 56.14 56 0.8713 15.3 1982 3460 80.45 50.67 56 1.0835 14.6 1983 3310 73.58 45.03 56 1.113 12.3 1984 3390 64.8 43.81 56 1.4382 11.5 1985 3263 38.71 46.27 56 2.2343 16.3 1986 3181 35.51 42.97 57 2.2919 18.7 1987 3167 45.23 41.78 57 2.0385 16.2 1988 3223 49.7 41.55 57 2.277 12.8 1989 3227 88.54 36.91 57 2.6214 14.7 1990 3152 135.59 43.01 58 2.5885 14.3 1991 3052 129.11 39.2 58 2.7633 15.3 1992 2929 119.28 38.7 59 2.8524 13.9 1993 2903 101.7 40.25 59 3.2729 9.7 1994 2934 98.77 41.94 60 3.5526 8.9 1995 2960 105.32 44.86 61 3.6284 8.7 1996 3020 101.94 47.87 61 4.3011 7.4 1997 3030 205.89 47.99 61 4.6072 8.6 1998 2975 282.99 50.24 62 5.5417 6.9 1999 2972 327.32 48.08 62 6.1191 5.2 2000 3020 343.71 52.74 63 6.9468 5.3 2001 3040 297.39 56.51 63 8.6093 5.7 2002 3108 288.38 62.36 63 10.5176 9.2 2003 3159 434.37 53.78 64 7.555 5.9 2004 3264 522.84 53.39 64 6.4402 1.4 2005 3398 657.98 55.16 64 6.3606 3.4 2006 3548 734.11 62.19 64 6.7668 4.6 2007 3705 833.55 65.81 65 7.0477 7.1 2008 3795 822.79 75.39 65 8.248 11.5 2009 3691 902.26 56.32 65 8.4117 7.1 2010 3745 1119.27 55.03 65 7.3161 4.3

Source: World development Indicators (World Bank).

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