Remittances, Financial Inclusion and Economic Growth in Sub Saharan Africa

Abstract

The study examined the connections between remittances, economic growth and financial inclusion across a panel data of 34 countries in Sub-Saharan Africa (SSA) from 2010 to 2020. Utilizing both Mean Group (MG) and Pooled Mean Group (PMG) Autoregressive Distributed Lag (ARDL) estimations, the study conducted panel unit root and co-integration tests. In both the short and the long run, it was determined that remittances and financial inclusion positively influenced economic growth. The interactive term indicated that financial inclusion served as an alternative in the relationship between remittances and economic growth. Ultimately, the study identified unidirectional causal links from financial inclusion to economic growth and from economic growth to remittances; however, between remittances and financial inclusion, no causal relationship was established in the Sub-Saharan African context. The results highlighted that, with the causality originating from financial inclusion to economic growth, financial inclusion is a significant mechanism for enhancing economic growth in Sub-Saharan Africa. This study is motivated by the critical role that remittances play as a significant source of external financing in Sub-Saharan Africa, where formal financial inclusion remains limited. Despite the growing volume of remittances, their potential to catalyze broader economic growth through improved access to financial services remains underexplored. Understanding the interaction between remittances and financial inclusion is essential to uncover how these financial flows can contribute to sustainable economic development in the region. This research aims to fill this gap by investigating how remittances influence financial inclusion and, in turn, impact economic growth across Sub-Saharan African countries. The study recommends that both short-term and long-term financial policies in the sub region should prioritize enhancing the performance of the financial sector via the development and execution of effective reforms aimed at strengthening the financial sector of the economy. There should be a wider array of banking services, such as rural banking, internet and mobile banking, and Automated Teller Machines (ATMs), to integrate more households receiving remittances in Sub-Saharan Africa into the formal financial system to ensure a more inclusive growth.