The Effect of Diaspora Remittances on Economic Growth in Malawi

Abstract

Over the past three decades, remittance flows have accelerated and have grown to become an increasingly prominent source of external funding for many countries. There is great interest in the topic of diasporas’ remittances on the part of academics, donors, international financial institutions, commercial banks, money transfer operators, microfinance institutions, and policy makers. There is also growing acceptance of the significance of transnational practices in defining the relationship between migration and remittances in the developing countries.

Having the overall objective of examining the effect of diasporas’ remittance on economic growth in Malawi, this study has used an auto regressive distributed lag (ARDL) model or Bound Testing approach to cointegration to analyze its claim. The study employed time series data for Malawi from 1985 to 2015. The outcome of the study revealed that, the impact of diasporas’ remittances during the study period is positive and significant. Besides this, the other growth determinant factor which was found to significantly and positively affect economic growth in Malawi was official development assistance while population growth was significant but negatively affected growth. The effect of other determinant factors on economic growth of Malawi happened to be insignificant. This study therefore recommends that the government of Malawi should work on policies which would encourage the Malawians in the diaspora to remit more to their country. This includes easing the receiving processes of remittances, introducing dual citizenship, and engaging Malawians in the diaspora in the development plan of Malawi.

Key Words: Diasporas’ remittances, Economic Growth, ARDL, Malawi