Do remittances reduce labor force participation in Sub-Saharan African countries? Empirical evidence of heterogeneous effects and economic opportunity channels

This research explores the heterogeneous effects of migrant remittances on labor force participation in sub Saharan Africa countries. Particular attention is paid to the roles of the economic opportunity channels of financial development and entrepreneurship. The empirical analysis focuses on 30 sub-Saharan African countries and covers the period from 2005 to 2023, using the Driscol-Kraay estimator, the Lewbel instrumental variables approach, and the generalized method of moments (GMM) to address potential endogeneity and cross-sectional dependence issues. The results indicate that increasing migrant remittances has a negative effect on total labor force participation. However, financial development and entrepreneurship mitigate these negative effects by acting as mediating channels. Furthermore, these remittances have contrasting effects: they tend to reduce female labor force participation and boost that of male. These transfers reduce labor force participation in the low-income group of countries and have a negligible effect on that of the high-income group. In order to mitigate the distortions of these transfers on the labor market, these results call for the need for targeted policies to exploit the potential of remittances by improving financial development and ensuring a favorable entrepreneurial climate in migrants’ areas of origin.