Remittance–economic growth linkage in Africa: the roles of financial development and inflation

This research explores the relationship between remittance inflows and economic growth in Africa, focusing on how financial development and inflation influence this linkage. Drawing on panel data from 43 African nations between 2007 and 2021, the study employs the System Generalized Method of Moments (GMM) to control for endogeneity and capture the dynamic nature of growth. The findings reveal that remittances have a significant and positive effect on economic growth, with financial development amplifying this impact by facilitating productive use of remitted funds. Inflation, however, does not significantly alter the relationship, indicating that remittance inflows remain stable even in inflationary environments. Notably, government effectiveness is consistently linked to lower growth, suggesting institutional shortcomings, while internet usage is negatively associated with growth, possibly reflecting transitional inefficiencies during digital adoption. These results point to the need for policy actions that strengthen the financial sector, lower remittance costs, and enhance both institutional and digital capacity. Improving governance and leveraging informal systems could help counteract the adverse effects of institutional weaknesses. By introducing financial development and inflation as moderating factors, this study extends existing literature beyond the direct remittance-growth nexus, offering fresh empirical evidence relevant to theories of financial intermediation and economic development in the African context.