Do Remittances Matter in Accelerating Labour Productivity and Capital Accumulation?

Abstract

In this paper, we examine the effect of remittances on labour productivity and capital accumulation through various channels. Our panel includes 25 African countries with data from 1990 to 2013. We employ the two-step generalized methods of moment estimator. The main results from this study are that remittances on their own do promote labour productivity but not capital accumulation. Indeed, remittances are observed to have a positive impact on labour productivity and a negative impact on capital accumulation. However, remittances do not promote labour productivity in resource rich countries. The effect of remittances on labour productivity is not clear when we interact remittances with life expectancy. Furthermore, remittances tend to promote capital accumulation in the presence of high quality human capital. Policies that promote remitting through formal channels will aid directing remittance inflows into productive investments thus encouraging human capital and labour productivity.