The synergistic effects of remittances, savings, education and digital financial technology on economic growth in Sub-Saharan Africa Open Access

International migration from Africa has seen a significant rise in recent years. In 2020, an estimated 19.5 million Africans were living outside the continent, marking an increase of 2.5 million since 2017 (McAuliffe & Triandafyllidou, 2022). Additionally, around 21 million African migrants were living within another African country during the same period. This trend of both internal and external migration is expected to continue growing, driving further increases in remittances sent back to home countries—a phenomenon that has garnered attention in both research and policy-making circles. Sub-Saharan Africa (SSA) has long been one of the largest recipients of remittances among developing regions. In 2021, official development aid to Africa was $35bn, while remittance inflows reached approximately $49bn (World Bank, 2022). For many SSA countries, remittances are not just a crucial driver of economic growth but also a vital source of livelihood for the majority of households. Remittances complement domestic savings and contribute to human capital development, particularly through education financing.

However, savings rates in SSA remain low compared to other developing regions such as South Asia, East Asia, and Latin America. Despite the region's rich natural resources, domestic capital mobilization has been hampered by challenges such as widespread poverty, high public debts, rapid population growth, inefficiencies in the financial sector, and persistent balance of payment issues. These challenges have led to insufficient domestic investment, resulting in sluggish economic growth. For instance, while East Asia's average savings rate was 34% between 1990 and 2019, SSA's average was just 22% during the same period (Tagem & Sen, 2022). Moreover, savings rates in SSA have been highly volatile, with a peak of 29% in the early 2000s, dropping to 24% in 2005, and rising again to 27% in 2016. As of the most recent World Bank estimates, the region's average savings rate stands at approximately 19%. Notably, there are significant variations within the region; for example, Kenya has a relatively high average savings rate of 28.60%, while Niger's rate is consistently low, averaging 13.06%.

Given these dynamics, the role of remittances in boosting savings and providing the necessary capital for sustainable economic growth in SSA cannot be overstated. Furthermore, digital financial technologies, such as mobile money and online banking, have revolutionized the way remittances are sent, received, and utilized, thereby enhancing their impact on savings and investment (Guermond, 2022). These technologies have made it easier and more cost-effective for migrants to send money back home, increasing the flow of remittances and enabling more households to access these funds for savings and education.

Education is another critical channel through which remittances can drive economic growth and poverty reduction. Education empowers individuals socially and economically, enhancing the quality and productivity of the labor force—key ingredients for economic transformation. Several studies (e.g. Arif, Raza, Freiman, & Suleman, 2019; Azizi, 2018; Barajas, Chami, Fullenkamp, Gapen, & Peter, 2009) have shown that remittances support education, particularly in rural areas of developing countries, by reducing school dropouts and absenteeism. This is particularly true for low-income households, where remittances help finance children's education, especially at higher levels. However, public financing of education in SSA is often insufficient due to limited resources, leading to high dropout rates (UNESCO, 2022a, b). Digital financial technology plays a crucial role here as well, enabling more efficient distribution of remittances to cover educational expenses, thereby increasing enrollment and completion rates among children.

While a large inflow of remittances is desirable, it is crucial to understand how this inflow enhances the productivity of savings and education. Remittances help lower the cost of accessing education for low-income households, particularly at higher levels. This allows students to focus on their studies without the need to work to support their education, leading to better academic performance and higher productivity in the labor market upon graduation. On the savings side, remittances augment domestic savings, providing capital for economic activities. Digital financial platforms further facilitate the accumulation of these savings, reducing the cost of borrowing and making it easier to invest in productive ventures. When channeled into such activities, remittances can expand economic opportunities, thereby driving economic growth.

Given this background, it is imperative to investigate how migrant remittances, bolstered by digital financial technology, reinforce savings and education to affect economic growth in Sub-Saharan Africa. This paper seeks to answer the following research questions: (1) What are the individual effects of migrant remittances, savings, and education on economic growth in Sub-Saharan Africa? (2) What is the interactive effect between migrant remittances and savings on economic growth in Sub-Saharan Africa? (3) What is the interactive effect of migrant remittances and education on economic growth in Sub-Saharan Africa? To address these research questions, this study analyzes data from 23 Sub-Saharan African countries over the period 1974–2020, where complete datasets for the variables of interest are available. The study employs the system GMM estimator, a robust estimation technique capable of addressing key econometric challenges such as unobserved individual country characteristics, endogeneity, and omitted variable bias.

Although previous research has explored the impact of remittances on economic growth, this paper offers a unique contribution by focusing on how remittances complement domestic savings and education to drive sustained economic growth, particularly in a region with generally low savings rates. Additionally, this study argues that the impact of remittances, savings, and education on economic growth may not be instantaneous, necessitating an analysis that includes both current and past levels of these variables. This approach distinguishes this paper from existing literature, highlighting its contribution to the ongoing discourse on remittances and economic growth in Sub-Saharan Africa.

The theoretical foundations of modern economic growth are predominantly rooted in two key frameworks: the neoclassical growth theory and the endogenous growth theory, both of which now intersect significantly with the role of digital financial technology. The neoclassical growth model, pioneered by Solow (1956), remains a cornerstone in understanding economic growth. This model posits that technological progress is the primary driver of long-term economic growth. Traditionally, economic growth was largely fueled by capital accumulation, measured by the amount of capital per labor unit, which enhanced productivity within a country. However, with the advent of digital financial technologies, the nature of capital accumulation has evolved. Digital platforms have facilitated greater access to financial resources, enabling more efficient capital allocation and mobilization. This, in turn, accelerates productivity growth and economic expansion. A central tenet of the Solow model is the concept of the “steady-state,” where economies grow consistently over time. In today’s context, digital financial technologies can help poorer countries accelerate their growth rates by enhancing financial inclusion and providing access to capital, thus promoting convergence with wealthier nations.

The second influential framework in economic growth literature is the endogenous growth theory, also known as the new growth theory, developed by economists such as Paul Romer and Robert Lucas in the 1980s and 1990s. The central premise of endogenous growth theory is that knowledge, rather than just physical capital, drives economic growth. In the digital age, financial technologies play a crucial role in the dissemination and accumulation of knowledge. Digital platforms facilitate the spread of ideas, innovations, and technological advancements, which are essential for economic growth. Unlike physical capital, knowledge can be infinitely shared and expanded, leading to sustained growth without the limitations of diminishing returns. Digital financial technologies also support research and development (R&D) by providing new avenues for funding and collaboration, further driving technological innovation and economic expansion. As these technologies are integrated into the economy, they enhance the productivity of knowledge and technological advancements, leading to increasing returns to scale and fostering long-term economic development.

Both the neoclassical and endogenous growth theories now incorporate the transformative impact of digital financial technology. These technologies enhance capital accumulation, knowledge dissemination, and innovation, providing a modern understanding of the dynamics of economic growth. By facilitating financial inclusion, improving access to capital, and supporting innovation, digital financial technologies are central to driving sustainable economic growth in the digital age.

Following from the above theoretical discussions, there has been a plethora of researches and studies aimed at identifying the factors that explain differences in output growth and income among countries and regions across the world. One of those factors that have received considerable attention happens to be migrant remittances aid strongly by digital financial technology.

Several channels through which remittances can affect economic growth have been hypothesized, and the integration of digital financial technology has amplified these effects. First, remittances are expected to boost economic growth by providing an alternative source of funding that helps overcome liquidity constraints and sustain economic activities in the receiving country. Digital financial platforms enhance this effect by making the transfer and access to remittances faster, more secure, and more widely accessible. This increased efficiency in remittance flows aids in capital formation and investment by complementing domestic savings (UNCTAD, 2010; Woodruff & Zenteno, 2007).

Moreover, remittances create supplementary income for receiving households, adding to their disposable income, and boosting consumption and aggregate demand, which directly contributes to economic growth (Mondal & Khanam, 2018; Acosta, Fajnzylber, & Lopez, 2007; Yang & Martinez, 2006). Digital financial technologies further facilitate this by enabling households to manage and utilize remittances more effectively through digital wallets and mobile banking, enhancing their purchasing power and economic participation.

Additionally, remittances provide the means for households to finance educational needs, contributing to the development of a productive labor force that can accelerate economic growth (Barajas et al., 2009; Azizi, 2018). Digital platforms support this by making educational payments more accessible and affordable, allowing for greater investment in human capital. However, remittances can have adverse consequences on the receiving country’s economic growth, particularly through a decline in labor supply, as recipients may reduce their work efforts (Azizi, 2018). The role of digital financial technology in this context is distinct, as while it enhances the positive impacts of remittances, it may also contribute to these adverse effects by making remittances more reliable and reducing the need for recipients to seek additional income.

The relationship between remittances and economic growth has produced mixed results in the literature. Some studies have found a positive and significant impact, while others have noted a negative or negligible effect.

For instance, the World Bank (2006) conducted a study on 67 countries using the system GMM estimation, finding that remittances positively impact economic growth. Faini (2007) also found a significantly positive relationship between remittances and growth for a panel of 68 countries from 1980 to 2004, although the effect was more pronounced with better infrastructure and lower uncertainty. Digital financial technology, by improving infrastructure and reducing transaction costs, could amplify this positive effect.

Anyanwu and Erhijakpor (2010) estimated the impact of international remittances on poverty reduction in 33 African countries from 1990 to 2005, finding that a 10% increase in remittances led to a 2.9% reduction in poverty headcount. Digital platforms can enhance this poverty-reduction effect by making remittance transfers more affordable and accessible Ozili (2018).

Adams and Klobodu (2016) examined the impact of remittances on economic growth in 33 Sub-Saharan African countries between 1970 and 2012, finding no robust impact. However, they found that when remittances were combined with stable and democratic governance, the effect on growth was positive and significant, suggesting that the broader economic environment plays a crucial role. Abduvaliev and Bustillo (2020) assessed remittances' impact on economic growth and poverty reduction compared to other capital flows in 10 Commonwealth Independent Countries. They found that a 1% increase in remittance flows triggered a 0.25% rise in per capita GDP and a 2% decline in poverty severity. The authors attributed this to the smoothing of consumption levels, a process made more efficient by digital financial technologies. A more recent study by Dutta and Saikia (2022) on 17 Asian countries from 1993 to 2017 found that remittances positively and significantly boosted economic growth. The incorporation of digital financial technology in these countries likely contributed to this positive outcome by enhancing the efficiency and impact of remittance flows on the economy.

Notwithstanding the positive impact of remittances on economic growth highlighted above, there are some studies that found evidence of a negative relationship between economic growth and remittances. Chami, Fullenkamp, and Jahjah (2005) developed a model to determine whether remittances were a source of capital flow for economic growth among 113 countries over the period 1970–1998. After controlling for other variables, their paper finds that remittances have significantly negative effect on economic growth. The authors however, argued that with better development of social institutions, remittances rather tend to enhance economic growth. A more recent study by Ayenew (2022) provides further evidence on the adverse effect of remittances on economic growth. The author investigates the impact of foreign financial inflows on economic growth among 31 sub-Saharan African countries using a two-step system GMM and finds that economic growth is negatively affected by remittances, though not statistically significant. Lim and Simmons (2015) employed panel cointegration analysis to investigate the effect of remittances on economic growth among countries in the Caribbean Community and Common Market and find no evidence of a long-run relationship between remittances and real GDP per capita or investment. The authors however, find evidence of a long-run relationship between remittances and consumption.

Another area of importance is the relationship between remittances and human capital. Several studies have suggested that remittances support education leading to accumulation of human capital in the recipient countries. The argument has been that remittances help to reduce school dropouts and absenteeism significantly especially in the rural areas of the developing world since children will not have to work to supplement household income. This way, remittances help to enhance enrollment and completion rates among children. For instance, Azizi (2018), using a panel data consisting of 122 developing countries covering 1990–2015 finds that on average, a 10% increase in remittances respectively raises primary and secondary school enrollments by 3.5 and 0.6% while it raises primary completion rate by 0.6% and secondary completion rate by 0.9%.

As noted earlier, remittances augment domestic capital formation in the receiving country and several studies have provided evidence in this regard. A UN Conference on Trade and Development study conducted in 2010 showed that nearly 30% of the remittances received in countries like Guatemala and Ghana provide the initial capital for many small-scale businesses. In a related study by Woodruff and Zenteno (2010) in Mexico, the authors find positive relationship between remittances and domestic capital formation. They discovered that remittances account for approximately 20% of the capital base of many small businesses and microenterprises operating across many urban areas in Mexico. A further analysis in their study shows that more than one–third of the capital invested in small scale enterprises within the 10 Mexican states which tend to have the highest number of migrants in the United States comes from remittances.

The above review shows that there are varied findings regarding the relationship between remittances and economic growth, a situation that could be explained in part by datasets, choice of control variables and estimation strategies. It is also clear that large volume of the existing literature estimates the direct aggregate impact of remittances on growth with just a few delving deeper to examine the indirect impact or the mechanisms through which remittances affect growth. This paper thus contributes to the literature by investigating how remittances enhance the productivities and impacts of education and savings on economic growth. It is significant to note that most of the existing studies focus on only remittance-education and remittance-savings nexuses without linking their impact to economic growth (See Amega, 2018; Gyimah-Brempong & Asiedu, 2015; Mansour, Chaaban, & Litchfield, 2011; UNCTAD, 2010; Woodruff & Zenteno, 2007).

Education provides the essential training and skills which make the labor force more productive for economic growth. Again, education provides the foundation for research and development activities which constitute an important source of growth. Nonetheless, public funding of education in many developing countries is greatly inadequate due to limited resources, a situation which often leads to school dropout (UNESCO, 2022a, b). To finance their education therefore, households tend to rely on remittances received from family members abroad. In this sense, remittances help to keep children in school which is expected to improve their educational outcomes. Thus, if remittances contribute significantly to household investment in education in developing countries, then it could improve the productivity of education leading to economic growth. Similarly, savings rates in many developing countries are generally low and as a result dependence on remittances to build domestic capital for economic transformation cannot be overemphasized. In sub-Saharan Africa where the rates of savings are generally low, remittances could supplement domestic savings to raise the much-needed capital for economic transformation. Again, it has been observed that many households depend on remittances sent by family members abroad to finance their children’s education particularly at the higher level. Consequently, this present study attempts to investigate the indirect effects of remittances or how remittances complement domestic savings and education to affect economic growth in sub-Saharan Africa.

This paper utilizes panel data encompassing annual observations from 23 countries in Sub-Saharan Africa over the period 1974–2020. The selection of these countries was influenced by the availability of comprehensive data for all variables of interest during this period. The dataset features a time dimension of 47 years and a cross-sectional dimension of 23 countries, resulting in a total sample size of 1,081 observations. This sample size is relatively substantial compared to similar empirical studies. For example, Anyanwu and Erhijakpor (2010) analyzed 528 observations to examine the impact of remittances on growth and poverty reduction in Sub-Saharan Africa, while Adams and Klobodu (2016) used a sample of 1,319 to explore the effects of remittances and regime durability on economic growth. Similarly, Dutta and Saikia (2022) investigated the long-run effects of remittances in Asia with a sample size of 442, and Lim and Simmons (2015) utilized 481 observations to study the impact of remittances on economic growth in the Caribbean Community and Common Market.

The primary variables of interest in this paper include gross domestic product per capita, remittances, education, savings, and digital financial technology. GDP per capita is measured in constant 2015 US dollars. Remittances are assessed through three metrics: the volume of remittances received by households, remittances as a percentage of GDP, and remittances per capita. Education is evaluated using gross tertiary and gross secondary school enrollment rates. Savings are measured as a percentage of GDP. Additionally, the paper considers the role of digital financial technology, measured by indicators such as digital payment adoption rates, access to digital financial services, and the volume of digital transactions.

Control variables include political regime, external debt, commodity prices, foreign aid, financial development, and inflation. Data on political regimes, education, and commodity prices were sourced from the PolityIV Project (2021), UNESCO (2022a, b), and IMF Financial Statistics (2023), respectively. Data on all other variables, including digital financial technology, were obtained from the World Development Indicators (2023).

The core objective of this paper is to estimate the impact of remittances, savings and education on economic growth. We start with an endogenous growth model framework. Endogenous growth theory emphasizes that economic growth is driven by internal factors such as technology, human capital, and investment. The introduction of digital financial technology (DFT) can enhance these factors by improving financial access, efficiency, and investment. In this framework, the production function can be expressed as:

Where $Yit$ = output in country i at time t, $Ait$ = total factor productivity, $Kit$ = capital stock, $Lit$ = labour force, $α$ = output elasticity of capital. Capital accumulation is given by $K˙it=Iit−δKit$⁠, where $Iit$ = investment, $δ$ = depreciation rate. Investment can be influenced by remittances, savings, education, and digital financial technology:

Where REMITT is the net inflow of migrant remittances, SAV is savings rate, EDU represents education and DFT is digital financial technology. $∅1$$∅2$$∅3$$∅4$ are Coefficients to be estimated. Human capital $Hit$ evolves based on education and technology:

Where $β1$ = Rate at which education translates into human capital and $β2$ = Depreciation of human capital. Technological progress can be enhanced by digital financial technology, which facilitates innovation and research:

We Incorporate the effects of remittances, savings, education, and digital financial technology on economic growth:

Note: As the role of digital financial technology becomes increasingly integrated into the economy, its marginal effect may diminish over time due to saturation or improved financial systems becoming standard.

The dynamic panel data regression model that incorporates the interaction effects of remittances, savings, and education, and the diminishing role of digital financial technology where $limφDFTit→0$⁠, can be specified as:

where i = 1, 2, 3, ...., N is the cross-sectional dimension of countries, t = 1, 2, 3,....., T represents time, y_it is the logarithm of real GDP per capita, y_it–1 is the lag of logarithm of real GDP per capita, $(REMITT*SAV)it$ is the interaction between remittances and savings, $(REMITT*EDU)it$ is the interaction between remittances and education, X_it is a set of control variables, τ, γ and δ are the coefficients to be estimated, λ_i represents the unobserved country specific fixed effect while, ε_it represents the error term. All the variables have been sufficiently defined in the previous section. If γ₄ > 0, it means remittances and savings are complements. γ₄ < 0 implies that remittances and savings are substitutes. In much the same way, if γ₅ > 0, it means remittances and education are complements while γ₅ < 0 implies that remittances and education are substitutes. A statistically insignificant γ₄ and γ₅ would imply that the effects of remittances, savings and education on economic growth are independent. Given this background, γ₄ and γ₅ are expected to be positive since we expect the interactions between remittances and savings and remittances and education to produce positive growth effects. Also, remittances, savings and education are theoretically and intuitively expected to promote economic growth, hence γ₁, γ₂ and γ₃ are expected to be positive.

We further argue that the impact of remittances, savings, education and their interactions on economic growth may not be contemporaneous. Thus, it may take some time for the impact of these variables on economic growth to show. This implies that economic growth in this case may be influenced by both currents and past levels of these explanatory variables. To account for this, we respecify Equation (6) to include both current levels and lags of these variables as shown in Equation (2) below:

where h is the maximum number of lags, γ₆–γ₁₀ are coefficients of the lagged variables and are all expected to be positive. The preceding model clearly shows that dynamic data methodology is utilized in this paper. More precisely, the paper makes use of the system Generalized Method of Moment (simply called system GMM) estimator proposed by Blundell and Bond (1998). This estimator is an improvement on the first-difference GMM earlier developed by Arellano and Bond (1991) whose significant reliance on lagged variables resulted in poor instruments. By modifying the first-difference GMM estimator through the introduction of lagged levels and lagged differences, Blundell and Bond's (1998) system GMM is capable of removing potential fixed effects as well as unobserved country-specific features which are likely to correlate with the independent variables. Consequently, the problems of omitted variable bias and endogeneity which often plague studies related to economic growth such as this are efficiently dealt with. Hence, the choice of the system GMM estimator is appropriate for this study given that it provides consistent estimates. The system GMM estimation was done by implementing the Stata user-written command xtabond2 developed by Roodman (2012). The flexibility of this command makes it more user-friendly than the traditional Stata command.

In this section, we delve into the presentation and detailed analysis of the empirical results obtained through the System Generalized Method of Moments (GMM) estimation technique. The primary focus is to evaluate the impact of lagged and current levels of remittances, savings, and education, as well as their interactions on economic growth. This comprehensive analysis is grounded in a panel of 23 Sub-Saharan African countries over the period from 1974 to 2020. Table A5 in the  Appendix presents the descriptive statistics which describe the characteristics of the dataset.

Tables 1 and 2 provide the detailed results from five distinct models, with the change in the log of GDP per capita serving as the dependent variable. Table 1 presents the findings related to the lagged variables, whereas Table 2 reports the effects of these variables at their current levels. The results are organized as follows:

Column 1 of both tables reports the relationship between remittances and economic growth. The results in Table 1 indicate that remittances have a positive and statistically significant impact on economic growth after a five-year period. Specifically, the coefficient on remittances is positive, suggesting that a 1% increase in remittances leads to a 0.02% increase in economic growth after five years. This finding aligns with existing literature, such as the studies by Dutta and Saikia (2022), Abduvaliev and Bustillo (2020), Azizi (2018), Mondal and Khanam (2018), and Woodruff and Zenteno (2007), which highlight that remittances significantly contribute to economic growth by aiding in capital formation and boosting household consumption. However, Table 2 shows that current levels of remittances do not have a significant impact on economic growth, echoing the results of Lim and Simmons (2015), who found no evidence of a direct positive effect of remittances on GDP per capita among countries in the Caribbean Community and Common Market. These seemingly contradictory results suggest that the positive effects of remittances on economic growth may take time to become evident in the economy.

Columns 2 and 3 focus on the effects of savings and education on economic growth. The results for savings, as shown in Table 1, reveal a positive but marginally significant coefficient. A 1% increase in gross domestic savings results in a 0.003% increase in economic growth after five years. Although the statistical significance is relatively low (10%), this finding supports the traditional growth theory that higher savings rates lead to greater capital accumulation and investment, consistent with the conclusions of UNCTAD (2010). Similarly, Table 2 confirms that current levels of savings do not significantly affect economic growth, reinforcing the notion that past savings levels have a more substantial impact on growth.

Column 3 presents the effects of education on economic growth. The analysis shows a positive and significant effect, with a 1% increase in tertiary school enrollment leading to a 0.009% increase in economic growth five years later. This result is consistent with earlier research by Bloom, Canning, and Chan (2006), Barro and Lee (1994), and Mankiw, Romer, and Weil (1994), which emphasizes the role of tertiary education in enhancing labor force productivity and fostering economic growth. Although current education levels are positively related to economic growth, the effect is less significant compared to the impact of lagged education.

Columns 4 and 5 examine the interactions between remittances and savings (REMITSAV) and remittances and education (REMITEDU). Both interactions show positive and significant relationships with economic growth, both with and without lags. These findings highlight the complementary role of remittances in enhancing domestic savings and supporting higher educational attainment, thereby contributing to economic growth. When households are net savers, remittances can facilitate capital mobilization, leading to increased investment and growth in GDP per capita.

Among the controlled variables, the paper finds political regime and commodity prices to be positively and significantly related to economic growth in all the estimations while external debt and inflation have significantly negative impact on economic growth, yet foreign aid and financial development are not statistically significant except in equations with savings (see columns (1) and (2) in Table 2)). The coefficients on political regime remain positive and statistically significant in all the estimations. This implies that paradigm shift towards democratic governance in many African countries is yielding growth dividends. Indeed, democratic development not only promotes political stability and fundamental civil liberties but also promotes property protection, business freedom, as well as contract enforcement. All these contribute to increasing the level of business and economic activities resulting in economic growth. This finding is in line with earlier findings obtained by Asiedu and Ofori (2022) Adams and Klobodu (2016) and Jalles (2010). Also found to be positive and significantly related to economic growth is commodity prices. As a major exporter of primary products, higher prices for exports are crucial to raise foreign exchange to supplement domestic resources to boost economic activities. External debt consistently has a negative relationship with economic growth in all regression results. Higher external debt represents future transfer of resources from the domestic economy to foreign creditors which have the potential to derail efforts aimed at economic growth.

Inflation’s effect on economic growth as shown in the results is negative and significant though not in all the estimations. This is consistent with Uddin and Ullah (2024). A rise in inflation increases the cost of doing business which reduces the rate of investment. Inflation also reduces consumption as it increases household expenditure on goods and services. Overall, a rise in inflation decreases aggregate demand and the level of economic activities which tend to slow down the rate of economic growth. Finally, the results show that autocorrelation is not a problem since the Arellano-Bond tests for first and second order serial correlations in both levels and differences fail to reject the null hypothesis of absence of autocorrelation. The selected instruments for all the estimations are also valid as the Sargan tests do not reject the validity of the overidentifying restrictions.

To further assess the robustness of our methodology, we conducted several robustness checks under plausible scenarios.

First, we investigated the sensitivity of our results by excluding Nigeria from the dataset and re-estimating the growth model. Nigeria, being the largest recipient of remittances in Sub-Saharan Africa and accounting for over one-third of total remittance inflows into the region, could disproportionately influence the results. If the coefficients of remittances significantly decreased upon removing Nigeria, it would suggest that the observed positive effect of remittances on economic growth was largely driven by Nigeria's substantial remittance inflows. However, as shown in Table A1 in the Appendix, the impact of remittances on economic growth remains robust, positive, and statistically significant even without Nigeria in the dataset. The coefficients for both lagged and current levels of remittances, as well as their interactions with savings and education, exhibit only minimal differences between the models with and without Nigeria. This indicates that the positive growth effect of remittances is not solely attributable to Nigeria, affirming the robustness of our growth model.

Next, we explored the interaction effects of savings and education with foreign aid to assess their impact on economic growth. This analysis was conducted under the premise that both remittances and foreign aid are external inflows aimed at supporting recipient countries, albeit through different channels. The results, presented in Table A2, show that the interaction between foreign aid and savings is not statistically significant, suggesting that foreign aid does not significantly impact the relationship between savings and growth. Conversely, the interaction between foreign aid and education is statistically significant, indicating that foreign aid, being directed to central governments, has a macroeconomic impact that complements education rather than directly influencing savings. Despite these findings, remittances, when used as a control variable, continue to have a positive and significant effect on economic growth. Education remains positively and significantly correlated with economic growth, while savings does not exhibit a significant effect. These results reinforce the stability and reliability of our methodology.

In the next phase of our sensitivity analysis, we examined the impact of different measures of remittances on economic growth, specifically focusing on the volume of remittances and remittances per capita. The results, detailed in Table A3 in the Appendix, indicate that both measures—regardless of whether lags are included—show that remittances remain robust and statistically significant when the growth equation is estimated using the volume of remittances in US dollars. The statistical significance of savings, education, and interaction terms further supports the robustness of our findings.

Finally, we extended our analysis to include multiple lag periods, as detailed in Table A4 in the Appendix. This extended lag analysis reveals that the positive impact of remittances on economic growth becomes apparent from the third lag period. Savings shows marginal significance only in the fifth period, while education exhibits positive significance in the fourth and fifth periods, though marginally significant in the fourth. Regarding interaction terms, the impact of savings with remittances is not statistically significant across lag periods, whereas the interaction between education and remittances remains positively significant. These results underscore that the effects of remittances, savings, and education on economic growth are not immediate but evolve over time.

Overall, these robustness checks validate the stability of our results, confirming that the positive impacts of remittances, savings, and education on economic growth are consistent across various specifications and time lags.

Sub-Saharan Africa stands out as one of the leading regions in the developing world for remittance inflows, a trend significantly bolstered by the recent increase in migration across the continent. The substantial rise in remittances now exceeds both official development aid and foreign direct investment in terms of monetary value. This paper delves into the ways in which these large remittance inflows can enhance the effectiveness of savings and education, thereby fostering sustained economic growth. By examining the interplay between remittances and these critical factors, the study contributes valuable insights into how their interactions impact economic outcomes.

The analysis reveals that remittances and education independently have a positive and statistically significant effect on economic growth, while the effect of savings is marginally significant. Furthermore, the interactions between remittances and both savings and education are significantly and positively associated with economic growth. These findings suggest several important policy implications:

Firstly, the substantial inflow of remittances offers a unique opportunity to drive economic growth, particularly when coupled with effective savings and educational policies. Governments should design strategies that facilitate the productive use of remittances. This could involve creating financial products that encourage the investment of remittance funds into productive sectors, as well as promoting policies that ensure remittances support long-term economic development rather than just short-term consumption. Secondly, given the positive interaction between remittances and savings, fostering a strong savings culture is crucial. Policymakers should implement initiatives that incentivize savings among households receiving remittances. This might include offering attractive savings account options, providing financial education, and creating incentives for saving remittance funds. Enhancing savings can lead to increased capital formation, which, in turn, can spur economic growth.

Thirdly, the significant impact of education on economic growth highlights the need for continued investment in educational infrastructure. Fourthly, remittances have the potential to make education more productive by increasing accessibility and affordability, particularly for higher education. Policies should encourage the use of remittances to cover educational expenses, thus allowing students to concentrate on their studies without the burden of earning additional income. This can lead to improved academic performance and better job market outcomes. Governments could facilitate this process by developing programs that link remittance flows with educational grants or scholarships. Lastly, the evidence that the effects of remittances, savings, and education on economic growth unfold over time implies the need for long-term strategic planning. Policymakers should adopt policies that account for the delayed impacts of these variables. This includes designing sustainable development strategies that integrate remittances, savings, and education into a coherent growth framework, and ensuring that policies are adaptable to evolving economic conditions.