Academic journal article The Journal of Developing Areas

Macroeconomic Determinants of Workers' Remittances and Compensation of Employees in Sub-Saharan Africa

Academic journal article The Journal of Developing Areas

Macroeconomic Determinants of Workers' Remittances and Compensation of Employees in Sub-Saharan Africa

Article excerpt

ABSTRACT

In this paper, an attempt has been made to identify the macroeconomic determinants of migrant remittances received in Sub-Saharan Africa (SSA) at the disaggregated level. The underlying motivation is that, given their unique characteristics, permanent and temporary migrants are likely to respond differently to macroeconomic conditions in migrant-host countries and their native or migrant-home countries. For the empirical analysis, the system Generalized Method of Moments (GMM) approach was used to estimate a dynamic panel-data model involving 36 SSA countries over the period, 1980-2009. It was found that the inflows of compensation of employees and workers' remittances to SSA are influenced by host-country macroeconomic conditions in a similar way, whereas these two forms of remittances are driven by contrasting home-country macroeconomic conditions. Remittances from permanent migrants are less altruistic than remittances from temporary migrants. To attract higher remittances on a more permanent basis, the implementation of stable macroeconomic and pro-growth policies are inevitable in labor-exporting SSA countries.

JEL Classification: C23, E42, F22, F24, J33

Keywords: Workers' Remittances, Compensation of Employees, Money, Migrant, SSA

Corresponding Author's Email: deo.adenutsi@gmail.com

(ProQuest: ... denotes formulae omitted.)

INTRODUCTION

According to the United Nations (2009), Europe leads as the main host of migrants with 32.6 percent of international migrant stock, followed by Asia (28.6 percent), North America (23.4 percent), Africa (9 percent), Oceania (2.8 percent) and Latin America (2.4 percent). Clearly, the net international migration trend is South-North, given the widening income gap and contrasting working conditions between the industrialized North and the impoverished South. Although labor-exporting countries may suffer from brain-drain, these low-income countries have been benefiting directly by way of international remittances. This could be the most obvious explanation as to why developing countries are the main destinations of migrant remittances with the industrialized world maintaining its status as the main source of remittance flows1. It is also not surprising that remittances have, over the past three decades, emerged strongly as an alternative source of development finance in many developing countries.

In recent years, official remittances alone surpass Official Development Assistance (ODA) and Foreign Direct Investment (FDI) in India, China, Mexico, Philippines, Lesotho, and in many other countries in Latin America and the Caribbean and South Asia.2 Official migrant remittances received by developing countries reached US$116 billion in 2003 representing more than 1.5 percent of their gross domestic product (GDP)3. In 2004, migrant remittances of US$126 billion became the second most important source of foreign exchange earnings to developing countries (World Bank, 2006). This was the year in which FDI to developing countries stood at US$165 billion with gross ODA amounting to US$79 billion (World Bank, 2006). Recorded migrant remittances received by developing countries rose to US$194.2 billion in 2005, reaching an all-time high of US$336 billion in 2008 before plummeting to US$316 billion in 2009, in response to the global financial crisis of 2007-2009 (World Bank, 2010). Still, the relatively superior importance of migrant remittances over other capital inflows in developing countries, with respect to size, growth rate and stability, remains unchanged over the past four decades as the decline in 2009 is only the second after the first was recorded in 1985.

Despite the general positive growth trend in migrant remittances, and also having being a major exporter of migrants, it is puzzling that SSA as a sub-region has remained the least recipient of official migrant remittances in terms of actual volume and per capita (see Figure A2 in the Appendix), a situation that raises a lot of questions. …

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