ABSTRACT
In this chapter, the impact of remittance inflows on financial development is examined in five selected sub-Saharan African (SSAn) countries, namely, Cote d’Ivoire, Ghana, Kenya, Nigeria and South Africa. The study used a wide range of financial development proxies covering the period from 2000 to 2017 to examine this linkage. In total, six proxies were used, including three proxies for bank-based financial development and another three proxies for stock-market development. Several modern econometric techniques were used to examine the linkage in a stepwise fashion. The techniques used include the cross-sectional dependence test, slope homogeneity test, first- and second-generation unit root tests, first- and second-generation cointegration tests, and the dynamic ordinary least squares (DOLS) and fully modified ordinary least squares (FMOLS) dynamic models. The results of the study show that the impact of remittance inflows on financial development in sub-Saharan Africa (SSA) depends on whether the financial sector is bank-based or market-based. In the main, the results show that while remittance has an ambiguous positive impact on stock-market development, where only two out of six specifications are significant, in bank-based financial development, its positive impact is robust and unambiguous for all the specifications estimated. The study argues that this finding is not surprising, given the nature of the financial system in SSA, which is largely dominated by the banking sector.
