Abstract:
This study examines the impact migrant remittances on economic growth and poverty reduction
in Ethiopia using time series data over the period 1980-2011. Employing modem time series
econometric techniques such as unit root tests, bound test co-integration approach and error
correction techniques within an ARDL framework which yields more robust estimates. The
results suggest that, remittances do have a significant impact on Economic growth by increasing
real private investment and fixed capital accumulation which increase capital accumulation,
reduction in current account deficit, external debt burden and improve education/skills of
the households by improving human capital . Finding merge from this study that have a strong
and statistically significant long run impact on poverty reduction, through the direct increase in
the incomes of the poor, thus smoothening household consumption and easing capital
constraints.
The study suggested policies which aimed at sustained increases in remittances through the
formal channel where significant amounts can be recorded and improve the impacts particularly
to the poor. Furthermore, transaction costs in sending remittances should be lowered and also
barriers to official remittance channels should be removed. For example, capital requirements on
remittance services should be lowered and formal financial intermediaries should be widened by
allowing domestic banks to operate overseas. Finally, it is strongly recommended that, the
government could develop appropriate training or education programs to assist returning
migrants or remittance receipts in making effective investment decision. In addition, the
appropriate infrastructure should be developed to generate favorable investment climate and to
complement investments out of remittance.
