Journal of Business and Economic Development

| Peer-Reviewed |

Analysis of Economic Development Impact of Remittances on Recipient (Zimbabwe) and Remitting (South Africa) Countries

Received: Aug. 20, 2018    Accepted: Oct. 29, 2018    Published: Nov. 21, 2018
Views:       Downloads:

Share This Article

Abstract

The importance of remittances to recipient economies has been greatly researched and there is a general consensus around their continued significance to these countries. However, their impact on the development of the receiving economies remains a subject of much debate among academics and policy makers. There is even greater dearth of academic research and debate around the impact of remittances on the sending economies. Unlike Foreign Direct Investment (FDI) flows, whose impact on the economies can be closely correlated to the economies’ outputs, remittances are micro-payments fragmented to multiple recipients, from multiple individual senders with different motives and for a multitude of uses. The researcher modified The Newtonian Gravity model first adapted by a Dutch economist, Timbergen as the first published proponent of the Newtonian gravity model application in analysis of financial flows. The model was applied to remittance flows between the sender and recipient countries, and assess the economic impact on the two economies. The key corridor of the research was between Zimbabwe and South Africa, which represents one of the biggest regional remittances flow corridors in Africa. The investigation revealed that remittances not only had a significant impact on recipient economies, but showed a negative correlation with Zimbabwe’s GDP in particular. Outflows of remittances proved to have very little impact on the sending country, South Africa. On further examination of the other countries studied, distance from the main remitting country had a negative correlation with remittances flows. Economic impairment of receiving countries increased their dependency on the remittances flows, and the funds were not directed at activities that directly contributed to GDP growth of recipient countries.

DOI 10.11648/j.jbed.20180303.13
Published in Journal of Business and Economic Development ( Volume 3, Issue 3, September 2018 )
Page(s) 77-85
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2024. Published by Science Publishing Group

Keywords

Remittances, Economic Development, Gravity Model

References
[1] Baas, T. and Melzer, S. M. 2012. The macroeconomic impact of remittances: A sending country perspective. Journal of International Economics. Norface Migration Discussion Paper No. 2012-21.
[2] Barajas, A., Chami, R., Fullenkamp, C., Gapen, M. & Montiel, P. (2009). Do workers remittances promote economic growth? IMF Working Paper, Middle Eastern and Central Asian Department.
[3] Bracking, S. and Sachikonye, L. 2006. Remittances, poverty reduction and the informalisation of household wellbeing in Zimbabwe. Oxford: GPRG.
[4] Crush, J. and D. Tevera (2010). “Exiting Zimbabwe.” In Zimbabwe’s exodus: Crisis, migration, survival, edited by J. Crush and D. Tevera. Page 51. Ottawa: International Development Research Centre.
[5] De Haas, H. 2005. International migration, remittances and development: Myths and facts. Third World Quarterly. 26(8): 1269-1284.
[6] Desai, M. A., Kapur, D. & McHale, J. 2001. Sharing the spoils: Taxing international human capital flows. Weekly Political Economy Discussion Paper, Harvard University.
[7] Dustmann, C. and Mestres, J. 2010. Remittances and temporary migration. Journal of Development Economics, 92: 62-70.
[8] Ehrhart, H., Le Goff, M., Rocher, E. & Singh, R. J. 2014. Does migration foster exports: Evidence from Africa. Policy Research Working Paper 6739, New York: Poverty Reduction and Economic Management Unit, The World Bank.
[9] Eurotrade, 2012, Zimbabwe, EU Bilateral Trade and Trade with the World, 5-13 July, http://trade.ec.europa.eu/doclib/docs/2011/january/tradoc_147429.pdf.
[10] Faustino, C. H. and Leitao, N. C. 2008. Using the gravity equation to explain the Portuguese immigration-trade link. WP12/2008/DE/SOCIUS. Lisbon: School of Economics and Management, Technical University of Lisbon.
[11] Finmark Trust, 2015. Remittances from South Africa to SADC. Geoff Orpen, 26th March 2015.
[12] Freund, C. and Spatafora, N. 2005. Remittances: Transaction Costs, determinants and informal flows. World Bank Policy Research Working Paper 3704. Washington, D. C.: World Bank.
[13] Girma, F. and Yu, G. 2002. The link between immigration and trade: Evidence from the United Kingdom, Weltwirtschaftliches Archiv, 138 (1).
[14] Giuliano, P. and Ruiz-Arranz, M. (2006). ‘Remittances, Financial Development and Growth’. IZA Discussion Papers, No. 2160. http://hdl.handle.net/10419/34035.
[15] Gould, D. M. 1994. Immigrant links to the home country: Empirical implications for U.S. bilateral trade flows. In The Review of Economics and Statistics, MIT Press.
[16] Head, K. and Ries, J. 1998. Immigration and trade creation: Econometric evidence from Canada. Canadian Journal of Economics, 31 (1): 47-62.
[17] Krugman, P. R. & Obstfeld, M. 2005. International economics: Theory and practice. (7th ed.). Boston: Addison-Wesley.
[18] Lueth, E. and Ruiz-Arranz, M. 2006. A gravity model of workers’ remittances. IMF Working Paper. Asia and Pacific Department. WP/06/290.
[19] Maphosa, F. 2005. The impact of remittances from Zimbabweans working in South Africa on rural livelihoods in southern districts of Zimbabwe. Forced Migration Working Paper Series #14.
[20] Martínez-Zarzoso, I. & Nowak-Lehmann, F. D. 2004. Economic and Geographical Distance: Explaining Mercosur Sectoral Exports to the EU. Open Economies Review (2004) 15: 291.
[21] Olney, W. W. 2014. Remittances and the wage impact of immigration. Journal of Human Resources, 50 (3): 694-727 in international trade: Using a gravity approach for exploring bilateral trade flows. The 42nd Congress of the European Regional Science Association, August 2002, Dortmund, Germany.
[22] Paas, T. 2002. European integration and EU Eastward enlargement process in international trade: Using a gravity approach for exploring bilateral trade flows. The 42nd Congress of the European Regional Science Association, August 2002, Dortmund, Germany.
[23] Parsons, C. 2005. Quantifying the trade – migration nexus of the enlarged EU: A comedy of errors or much ado about nothing? Sussex Migration Working Paper no. 27, Sussex Centre for Migration Research.
[24] Partridge, A. 2013. Africa-South Africa trading relationship, [Online]. Available from: http://www.tralac.org/files/2013/10/Africa-South-Africa-trading-relationship_Synopsis.pdf [Accessed 27 April 2017].
[25] Paton, B. 1995. Labour export policy in the development of Southern Africa. Harare. University of Zimbabwe.
[26] Piperakis, S. A., Milner, C. & Wright, P. W. 2003. Immigration, trade costs and trade: Gravity evidence of Greece. Journal of Economic Integration 18 (4).
[27] Rauch, J. and Trindade, V. 2002. Ethnic Chinese networks in international trade. The Review of Economics and Statistics, 84 (1).
[28] Tinbergen, Jan. Shaping the World Economy: Suggestions for an International Economic Policy. New York: The Twentieth Century Fund, 1962.
[29] Vezina, P. 2011. How migrant networks facilitate trade: Evidence from Swiss Exports, London: OxCarre and Department of Economics, University of Oxford.
[30] World Bank 2013. Remittances prices worldwide, Q3 [Online]. Available from: http://go.worldbank.org/7RKUKJF3Q0 [Accessed 14 May 2015].
Cite This Article
  • APA Style

    George Chirwa, Abdulla Kader. (2018). Analysis of Economic Development Impact of Remittances on Recipient (Zimbabwe) and Remitting (South Africa) Countries. Journal of Business and Economic Development, 3(3), 77-85. https://doi.org/10.11648/j.jbed.20180303.13

    Copy | Download

    ACS Style

    George Chirwa; Abdulla Kader. Analysis of Economic Development Impact of Remittances on Recipient (Zimbabwe) and Remitting (South Africa) Countries. J. Bus. Econ. Dev. 2018, 3(3), 77-85. doi: 10.11648/j.jbed.20180303.13

    Copy | Download

    AMA Style

    George Chirwa, Abdulla Kader. Analysis of Economic Development Impact of Remittances on Recipient (Zimbabwe) and Remitting (South Africa) Countries. J Bus Econ Dev. 2018;3(3):77-85. doi: 10.11648/j.jbed.20180303.13

    Copy | Download

  • @article{10.11648/j.jbed.20180303.13,
      author = {George Chirwa and Abdulla Kader},
      title = {Analysis of Economic Development Impact of Remittances on Recipient (Zimbabwe) and Remitting (South Africa) Countries},
      journal = {Journal of Business and Economic Development},
      volume = {3},
      number = {3},
      pages = {77-85},
      doi = {10.11648/j.jbed.20180303.13},
      url = {https://doi.org/10.11648/j.jbed.20180303.13},
      eprint = {https://download.sciencepg.com/pdf/10.11648.j.jbed.20180303.13},
      abstract = {The importance of remittances to recipient economies has been greatly researched and there is a general consensus around their continued significance to these countries. However, their impact on the development of the receiving economies remains a subject of much debate among academics and policy makers. There is even greater dearth of academic research and debate around the impact of remittances on the sending economies. Unlike Foreign Direct Investment (FDI) flows, whose impact on the economies can be closely correlated to the economies’ outputs, remittances are micro-payments fragmented to multiple recipients, from multiple individual senders with different motives and for a multitude of uses. The researcher modified The Newtonian Gravity model first adapted by a Dutch economist, Timbergen as the first published proponent of the Newtonian gravity model application in analysis of financial flows. The model was applied to remittance flows between the sender and recipient countries, and assess the economic impact on the two economies. The key corridor of the research was between Zimbabwe and South Africa, which represents one of the biggest regional remittances flow corridors in Africa. The investigation revealed that remittances not only had a significant impact on recipient economies, but showed a negative correlation with Zimbabwe’s GDP in particular. Outflows of remittances proved to have very little impact on the sending country, South Africa. On further examination of the other countries studied, distance from the main remitting country had a negative correlation with remittances flows. Economic impairment of receiving countries increased their dependency on the remittances flows, and the funds were not directed at activities that directly contributed to GDP growth of recipient countries.},
     year = {2018}
    }
    

    Copy | Download

  • TY  - JOUR
    T1  - Analysis of Economic Development Impact of Remittances on Recipient (Zimbabwe) and Remitting (South Africa) Countries
    AU  - George Chirwa
    AU  - Abdulla Kader
    Y1  - 2018/11/21
    PY  - 2018
    N1  - https://doi.org/10.11648/j.jbed.20180303.13
    DO  - 10.11648/j.jbed.20180303.13
    T2  - Journal of Business and Economic Development
    JF  - Journal of Business and Economic Development
    JO  - Journal of Business and Economic Development
    SP  - 77
    EP  - 85
    PB  - Science Publishing Group
    SN  - 2637-3874
    UR  - https://doi.org/10.11648/j.jbed.20180303.13
    AB  - The importance of remittances to recipient economies has been greatly researched and there is a general consensus around their continued significance to these countries. However, their impact on the development of the receiving economies remains a subject of much debate among academics and policy makers. There is even greater dearth of academic research and debate around the impact of remittances on the sending economies. Unlike Foreign Direct Investment (FDI) flows, whose impact on the economies can be closely correlated to the economies’ outputs, remittances are micro-payments fragmented to multiple recipients, from multiple individual senders with different motives and for a multitude of uses. The researcher modified The Newtonian Gravity model first adapted by a Dutch economist, Timbergen as the first published proponent of the Newtonian gravity model application in analysis of financial flows. The model was applied to remittance flows between the sender and recipient countries, and assess the economic impact on the two economies. The key corridor of the research was between Zimbabwe and South Africa, which represents one of the biggest regional remittances flow corridors in Africa. The investigation revealed that remittances not only had a significant impact on recipient economies, but showed a negative correlation with Zimbabwe’s GDP in particular. Outflows of remittances proved to have very little impact on the sending country, South Africa. On further examination of the other countries studied, distance from the main remitting country had a negative correlation with remittances flows. Economic impairment of receiving countries increased their dependency on the remittances flows, and the funds were not directed at activities that directly contributed to GDP growth of recipient countries.
    VL  - 3
    IS  - 3
    ER  - 

    Copy | Download

Author Information
  • Department of Leadership, University of Kwazulu Natal, Durban, South Africa

  • Department of Leadership, University of Kwazulu Natal, Durban, South Africa

  • Section