Institutional quality and the effect of remittances on unemployment: evidence from Africa

Abstract

Purpose The study investigates whether the impact of remittances on unemployment in Africa is influenced by the quality of institutions, addressing the inconclusive findings in the existing literature and the limited evidence from the African context. Design/methodology/approach Using panel data from 24 African countries spanning 2002 to 2018, the study applies a system generalised method of moments (GMM) estimator to examine the synergistic effect of remittances and institutional quality on unemployment. Findings The results reveal that higher remittances lowers unemployment. Further analysis reveals that as institutional quality improves, the unemployment-reducing effect of remittances deepens. This result is robust to an alternative measure of institutional quality. Practical implications The study recommends that policymakers in Africa should strive to enhance the quality of institutions, as weak institutions hinder the economy by diminishing the positive benefits of remittances on unemployment. Originality/value This study provides a fresh perspective beyond household-level or single-country analyses, offering new insights into how institutional quality influences the effect of remittances on unemployment in Africa.