Technical Efficiency and Technical Change in Africa: The Role of Money from the Diasporas

Abstract

Based on evidence from the literature that the relationship between remittances and total factor productivity (TFP) is inconclusive, we employ the non-parametric Malmquist productivity index - Data Envelope Analysis to decompose total factor productivity (TFP) into technical change and technical efficiency and further investigate the effect of remittances on the technical change and technical efficiency. We employ the Seemingly Unrelated Regression estimation (SUR) technique in a panel of twenty-three African remittance recipient countries across a twenty-three-year period (1990-2013). We show that remittances received by households have a positive and significant impact on technical efficiency but no significant on technical change (innovativeness). We further show that remittances received by skilled labour is significant to technical efficiency but has a lowering effect on technical efficiency.