The political economy of remittances: the case of Sub-Saharan Africa

Author: Judit Kiss

ELKH KRTK, Institute of World Economics, Working Paper Nr. 270 (2023) April 2023

Abstract

The aim of the paper is to introduce and analyse the positive and negative micro- and macroeconomic effects of remittances in its complexity, in the migration-remittances-development context and to draw the overall balance from a political economy perspective in the case of Sub-Saharan Africa. The impact of remittances is mainly determined by the motivation to remit and the determinants of remittances. In the case of Africa, the main motivation is still altruism mixed with self-interest based on endogenous migration-, exchange- and portfolio- approaches with countercyclical and procyclical nature. The size and frequency of fixed and discretionary remittances inflow depend on the stock, type, legal status, personal character, individual behaviour, qualification and educational attainment of migrants, the political and economic situation of the host and the home country, and the transaction costs. The micro- and macroeconomic impacts of the yearly 50 billion remittances inflow is analysed according to remittance-developmental pluralist school of thought where the causes and the use of remittances are also considered. Though the results are not in all cases straightforward,  Africa should promote and sustain the inflow of remittances as an alternative, non-debt generating source of financing development and strengthen the positive impact on economic growth, savings and investment, financial and human development, poverty and inequality reduction, and minimize/handle the negative consequences, like corruption, inflation, moral hazard, brain drain, Dutch disease.