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Rainfall, Financial Development, and Remittances: Evidence From Sub-Saharan Africa

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  • Mr. Rabah Arezki
  • Markus Bruckner

Abstract

We use annual variation in rainfall to examine the effects that exogenous, transitory income shocks have on remittances in a panel of 42 Sub-Saharan African countries during the period 1960-2007. Our main finding is that these income shocks have a significant positive effect on remittances, but that the effect is significantly decreasing in the share of domestic credit to GDP. So much so, that at high levels of credit to GDP transitory increases in income had a significant negative effect on remittances. Our findings are consistent with the view that remittances take advantage of unexploited domestic investment opportunities that can exist due to domestic credit market frictions. Our findings also support the view that when barriers to financial flows are low, remittances effectively provide insurance against transitory income shocks.

Suggested Citation

  • Mr. Rabah Arezki & Markus Bruckner, 2011. "Rainfall, Financial Development, and Remittances: Evidence From Sub-Saharan Africa," IMF Working Papers 2011/153, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2011/153
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    More about this item

    Keywords

    WP; remittance; GDP; ln; remittance inflow; Transitory Income Shocks; Remittances; Financial Development; significance level; GDP ratio; least squares estimate; remittances response; ratio quartile; remittances to rainfall; Income; Financial sector development; Income shocks; Credit; Sub-Saharan Africa;
    All these keywords.

    JEL classification:

    • F24 - International Economics - - International Factor Movements and International Business - - - Remittances
    • F30 - International Economics - - International Finance - - - General
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General

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