Do Remittances Stimulate Private Sector Investment? A Case of Sub-Saharan Africa

Abstract

Private sector investment is vital for economic growth, human capital development, poverty reduction and job creation. Private sector investment depends on an efficient financial sector and public investments. In Sub-Saharan Africa credit constraints is the key hindrance to private sector investment. Fortunately, remittances sent across countries have increased tremendously with the developing countries receiving the largest share. The aim of the study was to determine whether remittances can stimulate private sector investment through lessening credit constraints facing households. The study targeted fifteen Sub-Saharan Africa countries for the period between 1982 and 2012. Data was collected from World Bank databases and analysed through a fixed effect regression. The study found that remittances had a positive and significant effect of private sector investment. The Study recommends; households should substitute bank credit for remittances, African governments should create a regulatory regime that allows for the free transfer and receipts of foreign remittance and the need for financial intermediation.

Keywords: Remittances, private sector investments, accelerator theory, fixed effect regression, Sub-Saharan Africa.