Migrant Workers' Remittances and External Trade Balance in Sub-Sahara African Countries

Abstract

Workers’ remittances represent a major source of private external finance for many developing countries. Moreover, these flows which have been on the upward trend in recent times are now widely regarded as important financial flows to many developing countries that receive them in large quantity. One major concern about remittances is that in countries receiving significant flows, the local currencies could appreciate artificially due to over-valuation; this might in turn be harmful to the overall trade balance and long-run economic growth of the receiving economies.This study investigates the possibility of this phenomenon in some selected Sub-Saharan African countries. The hypothesized link between workers’ remittances and external trade balance was specified in a linear dynamic panel data model and estimated using the system Generalized Method of Moments.A major finding shows that remittance inflows have a contemporaneous negative but statistically insignificant impact on external trade balance across the sampled countries. This result suggests that remittance flows may not be helpful in promoting the goal of maintaining a sustainable external trade balance in the selected SSA economies.