Remittances and economic growth in East Africa

In East African countries, remittance is a crucial source of external financing, frequently surpassing foreign direct investment and official development assistance. Despite its essential contribution to household welfare, the overall effect of remittances on economic growth has not been adequately examined within the region's distinct economic and institutional contexts. This paper used data from the World Development Indicators to examine the impact of remittances on GDP per capita growth across 15 East African countries from 2000 to 2022. Employing a fixed effects model and System Generalized Method of Moments (System GMM) to address unobserved heterogeneity and endogeneity, the findings indicate a significant positive association between remittances and economic growth. High inflation and rapid population growth, however, constrain the developmental impact of remittances. The findings indicate that financial depth enhances the effectiveness of remittances in promoting economic growth. The study indicates the need for specific policies aimed at optimizing the growth potential of remittances, which encompass enhancing financial inclusion, stabilizing inflation, and promoting investment-friendly environments. These initiatives may allow East African nations to utilize remittances more efficiently as a catalyst for sustainable economic growth. This research underscores the vital role of remittances in economic development and emphasizes the need for structural reforms to enhance their long-term impact and sustainability in East Africa.