Financial Development Channels and Remittances in the SADC

There is a constant need to seek new catalysts for economic growth in various regions of the world, particularly within Sub-Saharan Africa. Financial development and remittances could be potential catalysts, but this has been strongly debated in empirical research. This study, therefore, analysed the financial development-remittance-growth nexus, but from the context of the Southern African Development Community from 2004 to 2014. The aim of this study was two-fold. Firstly, it analysed the short-run dynamics of interaction between various aspects of financial development and remittances on the economic growth rate (real gross domestic product). Secondly, it analysed the long-run dynamics. In this study four broad institutional channels of financial development were analysed, namely, access, depth, efficiency, and stability. The empirical model was estimated using the two-stage least-squares technique and the two-step system generalised method of moments technique. The empirical findings showed a significant relationship with the interaction between financial efficiency and remittances on the economic growth rate, but only in the short run (ceteris paribus). However, this study could not establish whether this interaction had a positive or negative effect on the economic growth rate. Nonetheless, financial access and financial stability had a significantly negative effect on the economic growth rate, both in the short and long run (ceteris paribus). Remittances and foreign direct investments generally had an insignificant effect on the economic growth rate (ceteris paribus). Further findings suggest that remittances were a-cyclical in nature. Overall, it is recommended that policy discussions analyse implications of increasing competition among financial institutions and remittance service providers to reduce intermediation costs