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Rainfall, Financial Development, and Remittances: Evidence from Sub-Saharan Africa

Author/Editor: Arezki, Rabah | Bruckner, Markus
Authorized for Distribution: July 1, 2011
Electronic Access: Free Full Text (PDF file size is 843KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: We use annual variation in rainfall to examine the effects that exogenous, transitory income shocks have on remittances in a panel of 42 Sub-Saharan African countries during the period 1960-2007. Our main finding is that these income shocks have a significant positive effect on remittances, but that the effect is significantly decreasing in the share of domestic credit to GDP. So much so, that at high levels of credit to GDP transitory increases in income had a significant negative effect on remittances. Our findings are consistent with the view that remittances take advantage of unexploited domestic investment opportunities that can exist due to domestic credit market frictions. Our findings also support the view that when barriers to financial flows are low, remittances effectively provide insurance against transitory income shocks.
 
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Series: Working Paper No. 11/153
Subject(s): Business cycles | Cross country analysis | Developing countries | Economic growth | External shocks | Income | Sub-Saharan Africa | Workers remittances
Author's keyword(s): Transitory Income Shocks | Remittances | Financial Development
 
English  
    Published:   July 1, 2011        
            Format:   Paper
    Stock No:   WPIEA2011153   Pages:   21
    Price:   US$18.00 (Academic Rate: US$18.00 )
       
     
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