Socioeconomic Implications of Foreign Remittances and Human Capital Flight in Africa

ABSTRACT This study tests the hypothesis that foreign remittances compensate for the effects of outward migration. It uses a panel dataset of 51 African countries, a dynamic estimator, and selected socio‐economic performance indicators. On a macroeconomic and procyclical scale, the study finds that human capital flight (HCF) constrains the manufacturing sector performance, per capita GDP growth, and labour force participation in the sending countries. In addition, on a microeconomic and countercyclical scale, infant mortality and out‐of‐pocket spending increase as HCF intensifies. Foreign remittances can mitigate this by providing financial support for households' private health expenditures and capacity development. This study illustrates that in the present era of transnationalism, reliance on the microeconomic need for remittances as a justification for HCF is counterproductive. For remittances to serve the expected compensatory role and yield macroeconomic benefits, African governments need to have incentive structures that can attract, mobilise, and channel the flows to critical socioeconomic sectors.