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Abstract

Do remittances represent a significant positive determinant of democratic institutions in Sub-Saharan Africa? In this paper, we estimate the effect that remittances have on democratic institutions in Sub-Saharan Africa over the period 1975–2014. Using a 5-year non-overlapping panel sample and controlling for country and time fixed effects, we find that remittances are positively associated with democratic institutions. Our baseline system-GMM estimates indicate that a one standard deviation increase in remittance flows improves democratic institutions by around 0.32 standard deviations. Furthermore, we find that remittances improve democratic institutions by increasing schooling and reducing poverty.

7. Conclusion

Do remittances represent a significant positive determinant of democratic institutions in SSA? Our empirical analysis suggests the answer is yes. A large literature has examined the economic effects of remittances in developing countries. The view that remittances can also affect political institutions in developing countries has recently been gaining attention. However, the evidence on SSA is very thin. This is surprising given that remittances play a key role in SSA economies. In this paper, we have investigated the impact that remittances have on democratic institutions in SSA over the period 1975–2014. Using a 5-year non-overlapping panel sample and controlling for country and time fixed effects, we show that remittances have a significant positive impact on democratic institutions in SSA. This finding remains true in least squares regressions and with dynamic system-GMM estimation that accounts for the endogenous relationship between remittances and democratic institutions and that controls for any bias arising from the lagged dependent variable, as well as using alternative measures of democratic institutions.