Macroeconomic Determinants of Workers' Remittances and Employee Compensation in SSA

What is it about?

This study examines the main economic factors that influence remittances—the money sent home by migrants from Sub-Saharan Africa (SSA) who work abroad. Remittances are crucial in SSA, as they provide financial support to families, improve living standards, and help with local economic growth. With SSA being a significant exporter of labor, understanding what drives remittance flows can help governments develop policies that maximize the benefits of this income stream. This research particularly focuses on how economic conditions in both the migrants’ host countries (where they work) and home countries affect the amount of money they send back. The research highlights that migrants' reasons for sending remittances are complex and vary with their circumstances. Many migrants send money to their families out of altruism, meaning they want to support loved ones back home, especially during difficult times like economic downturns. This is more common among temporary migrants who have close family ties in their home countries and are likely to remit regularly as a form of support. However, for long-term or permanent migrants, remittance motivations may shift from immediate family support to investment purposes, especially if they intend to eventually return home or retain an economic stake in their home country. These migrants may remit more when economic conditions at home improve, seeing it as an opportunity to invest in local assets, property, or businesses. One of the key findings is that the macroeconomic conditions in both host and home countries play distinct roles in influencing remittance flows. When the economy in the host country is strong—meaning higher employment opportunities and wages—migrants are generally in a better position to remit larger amounts. Similarly, exchange rates also affect remittance levels, with stronger host-country currencies enabling migrants to send more valuable remittances relative to their home-country currency. This link to exchange rates and host-country economic conditions is particularly important for temporary migrants who have urgent financial obligations back home, as they can remit more in favorable currency conditions. At the same time, home-country economic conditions also matter but in more varied ways. For example, when income levels in the home country increase, permanent migrants are more likely to send larger remittances, potentially to fund investments. Conversely, if economic conditions in the home country deteriorate, temporary migrants often increase remittances to support their families. High inflation in the home country also drives temporary migrants to remit more, as their families may need additional support to cope with the rising cost of living. In addition, improved access to credit in the home country encourages permanent migrants to remit more, as it may allow their families to make investments with the funds they receive. The study suggests that if SSA governments wish to attract more stable and higher remittance flows, they should implement policies that promote economic stability and growth. Measures like stable inflation, accessible credit markets, and favorable investment conditions can make remitting funds more attractive to migrants, particularly those considering long-term investments back home. By creating a stable macroeconomic environment, SSA countries can better harness the potential of remittances to support sustainable development and poverty reduction across the region.

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Photo by Alistair MacRobert on Unsplash

Photo by Alistair MacRobert on Unsplash

Why is it important?

This publication is timely and unique as it addresses the growing importance of remittances in Sub-Saharan Africa (SSA), a region that heavily relies on migrant remittances as a key source of income and economic stability. While much research has examined remittances globally, this study provides a focused, in-depth look at the distinct economic drivers affecting SSA specifically, which has unique migration patterns and economic challenges. By analyzing how both host- and home-country economic conditions impact remittance flows, the study provides valuable insights for policymakers in SSA who aim to create stable environments that attract higher and more consistent remittance inflows. What sets this work apart is its focus on the different motivations of temporary and permanent migrants, highlighting how these groups respond to economic changes in diverse ways. For instance, temporary migrants often remit more out of family need when home-country conditions worsen, whereas permanent migrants may remit more for investment opportunities when home economies improve. This nuanced understanding can help SSA policymakers design targeted policies that maximize the developmental impact of remittances, making it a valuable reference for both academic researchers and policy advisors focused on economic growth and stability in developing regions. Given the rising interest in alternative financial flows to support SSA’s development, especially in the context of global economic uncertainties and fluctuating foreign aid, this publication offers a timely, data-driven perspective that has the potential to influence economic policy discussions in SSA and beyond.

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