Leveraging remittances for economic diversification: empirical insights from sub-Saharan Africa

Abstract Economic diversification remains a central development challenge in Sub-Saharan Africa (SSA), where many economies continue to depend heavily on low-complexity, and resource-based activities. At the same time, remittances have emerged as a significant and growing source of external finance across the region, yet their potential role in driving structural transformation has not been sufficiently explored in the empirical literature. This study addresses this gap by examining the effect of remittances on economic diversification, across 33 SSA countries over the period 2000 to 2022. Using a panel dataset compiled from the world development indicators (WDI) and the observatory of economic complexity (OEC), the study employs both the Driscoll and Kraay robust standard error estimator and the instrumental variables generalized method of moments (IV-GMM) to address issues of cross-sectional dependence and endogeneity. The findings reveal that remittance inflows significantly and positively affect economic complexity, suggesting that remittances contribute meaningfully to the diversification and upgrading of productive structures in SSA. These results are robust to several sensitivity tests, including the addition of control variables, the use of alternative measures for both remittances and economic complexity, and the exclusion of outliers. Mediation analyses further identify internet access and domestic investment as key indirect transmission channels. Based on these findings, the study proposes evidence-based policy recommendations for enhancing the developmental impact of remittances through digital inclusion and investment facilitation.