Original Research Article
Issues in Business Management and Economics
Vol.1 (5), pp. 107-114, September 2013
Article ID BM036, 008 pages
Copyright © 2014 Author(s) retain the copyright of this article. Author(s) agree that this article remain permanently open access under the terms of the Creative Commons Attribution License 3.0 International License
Original Research Paper
Remittances and risk sharing in Africa
Accepted 27 August, 2013
John Bosco Nnyanzi
School of Economics,Makerere University,Kampala,Uganda.
Author Email: jbnnyanzi(at)yahoo.com
Theory envisages remittances to possess a risk diversification element via its potential provision of social security. Using a variance decomposition method, we find that while Africa experiences about 49% income risk sharing, the remittance channel is a significant shock absorber that could reduce income risk by about 27% perhaps via its provision financial resources to the recipients when a country is hit by a shock. Besides the finding that remittances could help in income risk sharing, the institutions appear to play a key role in the link between migrant transfers and risk sharing. Our findings call for policies aimed at increasing remittance inflow and their productive use and also an improvement of the financial institutions and anti-corruption measures if countries are to reap any gains from migrant transfers as a channel of risk sharing for purposes of improving welfare.
Key words: Remittances, income, risk sharing, idiosyncratic, institutions