The effect of remittance and volatility in remittances on macroeconomic performance in Africa: any lessons for COVID-19?

Abstract

Premised on the World Bank’s projection of a 20% fall in global remittances due to the effect of the COVID-19 pandemic, there have been concerns that remittance-dependent countries may be excessively affected. In this study, we explore the link between remittance, remittance volatility and macroeconomic performance to make a case for the potential impact of the COVID-19 pandemic. Specifically, the study examined the impact of remittance volatility on some macroeconomic variables [real gross domestic product (RGDP), consumption, investment, export and exchange rate] in a panel of seven African countries with the highest remittance–GDP ratio. This was done within a fixed effects and random effects model, using annual secondary data from 2004 to 2018. Our results show that remittance volatility exerts a negative but insignificant impact on RGDP, consumption, investment, export and exchange rate; while remittances itself has positive significant impact on RGDP, consumption and investment. Based on these findings, while any COVID-19-induced volatility in remittances flow into Africa may yield negative macroeconomic consequences, it is not likely to significantly affect the macroeconomic fundamentals of the most remittance-dependent African countries due to strong kinsmanship and the altruistic nature of remitting African migrants.