The impact of remittances on domestic investment and household consumption: A case of Sub-Saharan Africa

In recent years, remittance inflows have been African countries' fastest-growing source of capital flows. Several African countries are struggling economically because of food shortages, supply chain disruptions, droughts, and growing debt payment difficulties. Despite remittances' expansion and influence, there is insufficient evidence in the literature to support their effects on the context of resource- and non-resource-intensive nations. Therefore, with an emphasis on both resource-intensive and non-resource-intensive nations, this study examines the impact of remittances on domestic investment and consumption in Sub-Saharan Africa, using panel autoregressive distributed lag and fixed effect models. The analysis sample includes secondary data for ten countries covering the sample period from 1992 to 2022. The findings indicate that remittances have a negative impact on consumption and an insignificant impact on domestic investment in the short term. Over time, however, the impact is detrimental to investment and beneficial to consumption. Furthermore, in non-resource-intensive countries, the substantial detrimental effect of remittances on investment is particularly noticeable. This suggests that remittances do not contribute to economic growth in non-resource-intensive countries since they do not provide a substantial source of investment or short-term consumption in these regions. Therefore, teaching remittance-receiving households how to handle funds efficiently could make a difference. Additionally, policymakers may consider putting in place incentives and regulations supporting investment and consumption in the economy. This may involve providing tax incentives for remittances used for investment objectives like the development of human and physical capital. Such initiatives can maximize the benefits from remittance inflows and promote domestic investment.