The Effect of Personal Remittance on Poverty Reduction in Sub Saharan Africa

The objective of this study was to analyze the macroeconomic effects of personal remittance in 29 countries located in the Western and Eastern African regions on current accounts balance, economic growth and poverty alleviation using a panel data of 2000-2014. Both for the economic growth and poverty reduction effects estimation, random effects model was found to be appropriate by applying the Hausman model specification test and Breusch-Pagan Lagrangian Multiplier (LM) test. But for separate estimation of West and East regions, random effects for the Eastern and fixed effects for the Western become the appropriate estimation models. Based on the estimation result, remittance has a statistically significant and positive effect on economic growth in the countries together. When remittance increases by 10%, the economy grows by 1.47%. Plus, a 10% rise in per capital remittance causes, a 1.14% growth in per capita GDP. And it has a negative significant effect on poverty headcount. When remittance receipt increases by 1%, poverty in these countries decline by 2.55%. Thus, the poverty alleviation impact of remittance is greater than its growth-enhancing effect because of its multiplier effect. When the result is compared in the two regions, the effect in the East is greater than in the west. Governments in Sub-Saharan Africa should work towards smoothing the flow by reducing the cost of transfer, to promote saving by the recipient households so that remittance will be made more productive and tackle problems of transfer to bring the information flow to the formal way