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

By Adenutsi, Deodat E. | The Journal of Developing Areas, Winter 2014 | Go to article overview

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


Adenutsi, Deodat E., The Journal of Developing Areas


(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. Is there anything macroeconomic policy environment can do to increase official remittances received by SSA? Which of the components of migrant remittances do macroeconomic factors most affect, and in which direction? In other words, do macroeconomic factors impact differently on compensation of employees and workers' remittances? These pertinent questions are the motivation for verifying if macroeconomic factors have any distinctive impact on workers' remittances and compensation of employees as separate components of migrant remittances in SSA. Understanding the macroeconomic factors underlying the inflows of workers ' remittances and compensation of employees is crucial for the formulation of a relevant, effective and integrated policy towards mobilizing optimal remittances in SSA. This is because each of these components of remittances has its own distinct features. For instance, workers ' remittances are the funds transferred by migrants who have settled outside their home countries for at least 12 months, and hence, are more associated with permanent migration; whilst compensation of employees is more associated with temporary migration as it comprises funds transferred from migrants with less than 12 months' settlement outside their home countries. In order to find answers to the questions as posed above, 36 SSA countries for which relevant balanced data over the past three decades, 1980-2009 exists, were sampled for the empirical analysis. …

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