The impact of remittances on Zimbabwean economic development

Abstract

Remittances have grown to rival or surpass official development assistance and have increased living standards in the migrant sending countries. This research analysis explores the empirical developmental impact of formal remittances in Zimbabwe, particularly their effect on poverty reduction and human capital. Using a three stage least squares estimation technique to counter the endogeneity problem of remittances, the study provides evidence that a unit increase in the share of remittances on GDP reduces poverty by 52% and increases human capital accumulation by 11.5% in Zimbabwe. The reverse causality of remittances and poverty reduction has not been supported by the results of this study. Thus remittances contribute significantly to development objectives such as those of the Millennium Development Goals. The paper also strives to show that trade openness, GDP and dependency ratio help increase remittance inflows. Consequently, the development potential of remittances can particularly be improved by increasing the total flow of formal remittances and bilateral and multilateral agreements between the sending and the receiving countries. Improved management of remittances and incentives to channel remittances into more productive uses can also improve the developmental effect(s) of remittances