Remittances, Economic Growth and Poverty: A Case of African OIC Member Countries

This paper investigates the impact of remittance inflows on economic growth and poverty reduction for seven African countries using annual data from 1992-2010. By using the depth of hunger as a proxy for poverty in a Simultaneous Equation Model (SEM), we find that remittances have statistically significant growth-enhancing and poverty-reducing impact. Drawing on our estimates, we conclude that the financial development level significantly increases the remittances inflows and strengthens poverty alleviating impact of remittances. The results of our study further show a significant interactive impact of remittances and financial development on economic growth, suggesting the substitutability between remittance inflows and financial development. We further find that a 3 percentage point increase in credit provision to the private sector (financial development) can help eliminate the severe depth of hunger in the region. Remittances, serving an alternative source of private credit, can be effective in this regard. © Authors