The Dynamic Interaction among Remittances and Macroeconomic Variables : Evidence from Sub-Saharan Africa

This paper analyzes the simultaneous linkages between remittances and macroeconomic variables using a panel vector autoregression (PVAR) for 33 Sub-Saharan Africa (SSA) countries from 1973 to 2011. We document the strong impact of inflation on explaining remittances to SSA. Approximately 20% of the variance in remittances is attributed to unexpected inflation shocks. This supports the notion that remittances compensate local incomes. This paper also documents a strong positive impact of remittances on growth in SSA. These results demonstrate that remittances can aid in overcoming liquidity constraints in nations with poor financial institutions. Our findings shed light on the important role of remittances in explaining macroeconomic variability in SSA.