Remittances and Economic Growth in North Africa: A Panel Cointegration Analysis

Abstract

This article explores the short-term and long-term impacts of remittance inflows on economic growth in five North African countries (NAC): Egypt, Algeria, Tunisia, Morocco, and Sudan. Using annual panel data from 2000–2020 and employing the Panel Autoregressive Distributed Lagged (ARDL) model proposed by Pesaran et al. (1999), the research finds that remittance inflows have both significant long-term and short-term positive effects on economic growth. Specifically, a 1% increase in remittance inflows results in a 0.025% increase in economic growth. Additionally, other macroeconomic variables, such as capital formation and labor force participation, also contribute significantly to economic growth. The study reveals that in the long term, remittances promote investment activities, while in the short term, remittances primarily boost private consumption. The findings emphasize the need for policymakers to develop economic policies that encourage remittance inflows and direct them towards productive investment in the real economy. Recommendations include improving financial systems, reducing transaction costs, and implementing policies that stimulate remittance inflows for sustainable development.