28. REMITTANCES TO SUB-SAHARAN AFRICA IN THE WAKE OF A FINANCIAL CRISIS
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From Calì and Dell’Erba (2009) and the World Bank’s estimates, the implication is clear that remittances will decline during a global financial crisis. These declines are, however, relatively modest and set for quick recovery. This is also a finding from previous financial crises, because they report, for instance, that during the 1998 Asian crisis, remittances to East Asia declined by 15 percent in 1998 but recovered to precrisis levels by 1999. Jha, Sugiyarto, and Vargas-Silva (2009) estimate that remittance flows to Asia have slowed and are beginning to recover. Barajas and others (2010: 10) take the perspective that, in a crisis, having a large share of gross national income (GNI) coming from remittances is not a source of resilience, but a source of exposure. They found that (1) in SSA only a few countries are “remittance dependent” and (2) most African migrants stay within Africa, so they are less affected, and as such they conclude that “the impact of the global decline in remittances on African countries’ GDP growth is expected to be fairly mild.” Ratha, Mohapatra, and Plaza (2008) also found that remittances are a more resilient resource flow. They also present evidence to suggest that migrants often maintain their remittances even if their host countries’ economic conditions deteriorate. They conclude that remittances are less volatile than other financial flows because (1) they are sent by the migrants, and this tends to be persistent, (2) remittances are often a small part of migrants’ incomes, and (3) migrant workers often benefit from fiscal expansion programs during crisis periods in their host countries. Therefore, we can conclude that SSA’s possible lack of extensive and diversified outmigration has left it less exposed to the drop in remittances as a result of a global financial or economic crisis.
Method, Variables, and Data Based on the literature survey, we will investigate the following hypothesis: H1: Remittances to SSA will decline during a globally synchronized financial crisis. Our hypothesis results from the finding in the literature that a host country’s income is an important determinant of remittances. Because a significant number of African migrants find themselves in the European Union, a global financial crisis could affect their ability to remit. We have three reasons, however, in addition to that mentioned in the previous section, to suspect that H1 may be rejected. One is that many migrant workers in the European Union may be in jobs that are more recession proof. A second is that there are more SSA migrants in other SSA countries than European Union countries. And third is that a global financial crisis may see SSA countries’ exchange rates depreciate, which may lead to increased remittances. Our strategy is to estimate a regression equation of the determinants of remittance inflows. The estimating equation is informed by the literature on the determinants of