Maximising the impact of remittances on development outcomes: the case of SADC

Abstract

This paper investigates how remittances from South Africa to 10 countries in the Southern African Development Cooperation (SADC) region could be directed through formal channels to impact on development outcomes. Using annual data from 1994 to 2008, two-step system GMM by Arellano and Bover (1995) and seemingly unrelated regressions by Zellner (1962), we find that when spatial and individual effects are controlled for, different factors drive remittances to the SADC countries in the panel. Whiles altruism prevails in some, self interest prevails in others. This implies that the optimal policy pathway aimed at mitigating the use of informal channels or maximising the impact of remittances on development outcomes would differ between countries. Overall, the level of financial deepening in the home country is also crucial to the use of formal channels and the ability of countries to harness remittances for development purposes.