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Rainfall, Financial Development, and Remittances: Evidence From Sub-Saharan Africa
Author:
Mr. Rabah Arezki
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and
Markus Brucknernull

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Series:
IMF Working Papers
Volume/Issue:
Volume 2011: Issue 153
Language:
English
Publication Date:
01 Jul 2011
DOI:
https://doi.org/10.5089/9781455290666.001
ISBN:
9781455290666
ISSN:
1018-5941
Pages:
21
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
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2011: Issue 153