Do diaspora remittances affect banking sector development in Sub Saharan Africa?

Abstract

Purpose – The purpose of this paper is to determine the effect of diaspora remittances on the banking sector development in Sub-Saharan Africa. Design/methodology/approach – This study makes use of panel regression analysis and simultaneously uses pooled regression, fixed effects and random effects on a sample of 23 Sub-Saharan African countries during the period 1994-2009. Findings – The empirical results confirm that diaspora remittances affect banking sector development in Sub-Saharan Africa. All the empirical models support this prediction. Similarly, it was also found that high inflation has a negative effect on banking sector development. Other notable findings are that well-developed human capital and political stability enhance the development of the banking sector. Practical implications – The study provides insights into the role of diaspora remittances in banking sector development in Sub-Saharan Africa. It provides evidence that attracting diaspora remittances for emerging economies could as well help in mobilizing the much-needed loanable funds for private investment. Originality/value – The paper fills an important gap in academic literature by providing insights into the role of diaspora remittances in developing the banking sector particularly in Sub-Saharan Africa. This study complements other studies focusing in Latin America and given the increasing migration of the Sub-Saharan African population in search of education and employment, this paper provides policy makers with evidence on the implications of remittances in developing the banking sector. It was also found that well-developed human capital and political stability promote the development of the banking sector.