ABSTRACT

The perceived factors of economic growth in developing countries have ranged from surplus labor to capital investment and technological change, trade, foreign aid, foreign direct investment, investment in human capital, increasing returns from new ideas and research and development. In the research “The effect of remittances on the economic growth of Cameroon,” we analyze the effect of remittances on other independent variables like, gross capital formation, foreign direct investment and population on Economic growth (GDP) of Cameroon. We use secondary data obtained from 1979-2020(41 years period), obtained from World Bank and Development Indicators (WDI) data base to carry out our analyses. The research uses Ordinary Least Squares (OLS) with multiple regressions and time-series data to carry out analysis. It measures cause-effect relationship between variables. We find that, remittances positively have an effect on the economic growth of Cameroon and that our estimated parameters are reliable and can be used in forecasting. We recommend that government administration should reduce substantial transactions cost on migrants workers. Easing these constraints could increase remittances on receipts, while bringing a larger share of remittances payment into the formal financial system.

Keywords: Worker’s Remittances, Economic Growth, Gross Fixed Capital Formation, Foreign Direct Investment.

CHAPTER ONE

INTRODUCTION

• Background of  the Study

Remittances could be a source of financing development in developing countries apart from foreign direct investment (FDI) and official development assistance (ODA). It has both micro (household level), and macro impact  on  economies  of  developing  countries  as  many  of  these  economies  are  high  migrants  sending countries. They receive huge remittances annually. According to (World Bank, 2018), remittance flows to low- and middle-income countries (LMICs) are substantially three times larger than ODA, more stable than private capital flows, and are becoming significantly larger than FDI. Workers’ remittances to developing countries have grown substantially since the 1980s. Estimates put the figure at US$ 335 billion for 2010 from US$47 billion in 1980. The projection is that the figure will cross US$500 billionin 2022. This amount is substantially large and could be a significant resource needed to push forward the development agenda in developing countries. (World Bank, 2006) argues that remittances could stimulate economic growth, especially where the financial development is still in its infancy.

The  effect  of  remittances  on  economic  growth  in  developing  countries  is  not  very  clear.  Clemens  and McKenzie (2018, p. F181) posit that: Countries in which remittances are a large share of GDP have not experienced notably higher growth over a 20-year period than countries which receive much less in the way of remittances. … There is essentially no correlation between the growth in real remittances per capita income a country between 1990 and 2010, and its growth in per capita income over the same period. Countries such as Nigeria, Sierra Leone and Bolivia saw per capita remittances rise over 8,000% but saw no higher growth in real GDP than countries with little or no increase in remittances. Of course, this is the situation in many developing countries, and many reasons can be adduced to this. High migrant-sending countries are poor, and many are in crisis situations. The top ten international migrantsending countries in 2017 are all ranked on the failed state index under elevatedwarning to very high alert. These countries with their millions of migrants in parentheses are India (16.4), Mexico (11.9), Russian Federation (11.0), China (10.1), Bangladesh (7.8), Syria (7.8), Pakistan (6.1),  Ukraine (6.0), Philippines (6.0), and Afghanistan (5.1). Additionally, countries usually see a surge inremittances after crisis situations. Besides, remittances are not different from resource wealth; they tend to destroy tradable sectors in many countries.

Many African countries exhibit some of the issues raised above, and there are many high migrant-sending nations in Africa. Thus, African economies are major receivers of huge remittances. In fact, two African countries, Egypt, a country grouped among the Middle East and North Africa (MENA) countries and Nigeria, a sub-Saharan African (SSA) country, feature on the top ten remittance-receiving countries in 2020. While Egypt received US$30 billion in remittances, Nigeria got US$ 17 billion, according to (World Bank’s 2021) estimates. Egypt and Nigeria only got US$ 5.9 billion and US$ 2.4 billion in FDI, respectively. The experience of Egypt and Nigeria with respect to remittances and FDI is like many other African countries. The mobility of Africans within these regions has been followed by the sending of regular amounts of money. Nigeria is by far the top remittance recipient in Africa, accounting for 17billion USD in 2021, a slight increase over the previous year ($9.6 billion). Other top recipients include Sudan ($3.2 billion), Kenya ($1.8 billion), Senegal ($1.2 billion), South Africa ($1.0 billion), Uganda ($0.8 billion), Lesotho ($0.5 billion) and Cameroon (54,179,780Fcfa) in 2021.

Cameroon is found in central Africa with a population of about 20 million people. However, this population keeps fluctuating over the years due to the rate of migration in the country. Cameroonian emigrants were estimated at 170,363 in 2007. France with 38,530 migrants is the preferred destination of Cameroonians, followed by Gabon (30,216), Nigeria (16,980), and the United States (12,835), (DHRC, 2017). According to the partial data compiled by the African affairs Directorate of the ministry of external relations of Cameroon, between 250,000 and 300,000 of Cameroonians lived in the Gulf of Guinea states between 2000 and 2004, essentially because they belong to the same ethnic groups and geographical area (Chouala, 2004). The majorities are long-term migrants given that 40% reside in their country of emigration for over 10years and 16% for a period of five to ten years. Cameroon is a significant figure of highly skilled workers. In 2000, 17% of Cameroonian population with a higher education emigrated (Douquier & Marfouk, 2005). During the 1995-2005 period, 46% of Cameroonian Doctors, 19% of nurses immigrated to selected countries.

According to Cameroonian medical association, 4,200 Cameroonian doctors mostly specialists are working abroad. Migration in Cameroon has great impact on the national economy. Indeed the transfer of funds by Cameroonian emigrants helps fight poverty. According to the World’s Bank, the amounts of remittances from Cameroonian migrants was estimated USD 103 million in 2005 that is 2.5% of official development aid.

Migrants’ remittances to their countries of origin constitute considerable financial manna and crucial financial support that contributes to increasing the income of the recipient families. Thus, they represent the most significant element of the relationship between migration and development. These remittances are not only considered financial transfers, but also as social transfers. Moreover, they represent an important source of financial flows for the recipient countries. As  an  indication,  in  2011,  they  represented  10%  of  the  GDP  of  22  developing  countries. Moreover,  they  are  stable,  counter-cyclical,  and  resilient  in  the  face  of  adverse  business conditions. According to calculations and statistics, in 2006 transfers of funds from migrants to developing countries reached 228 billion USD. They represented the second-largest source of financing for these countries after foreign direct investment (FDI) and ahead of official development assistance (ODA). In 2007, 2008, and 2009, remittances reached $278 billion, $323 billion, and $307 billion respectively. These figures show that remittances are resilient even in times of recession and economic crisis.

 Remittances decreased slightly in 2009 but have increased again since 2010.  In recent years, remittances have increased remarkably.  They reached US$453 billion in 2015, and are now higher than FDI and ODA (excluding China) and represent the largest source of external financing for low- and middle-income countries like Cameroon. For  example,  the  World  Bank  reports  that  despite  the  impact  of  the  coronavirus  on  most economies, including a global recession unprecedented since 1945, many experts predicted that remittances would take a hit and slow down. Contrary to those expectations, remittance flows held up surprisingly well in 2020, even reaching $706 billion in total, up from $722 billion in 2019, the World Bank estimated, and are expected to rebound in 2021 to $751 billion.

According to the (World Bank’s 2011) Fact-book on Remittances and Migration, remittances played a very important role during the crisis by providing a safety net for poor countries in the face of the collapse of private capital flows.

According to the Fact-book (2011), the top 10 countries of destination for migrants were the United States, Saudi Arabia, Germany, Russia, the United Arab Emirates, the United Kingdom, France, Canada, Spain, and Australia. On the other  hand,  the top 10 countries  of  origin  of  migrants  were  India,  Mexico,  Russia,  China, Bangladesh,  Pakistan,  Philippines,  Afghanistan,  Ukraine,  and  the  United  Kingdom.  In addition, the Mexico-U.S. borders were the world’s largest migration corridor in 2013 (13 million migrants) followed by the Russia-Ukraine, Bangladesh-India, and Ukraine-Russia corridors. The United Nations considers the last three South-South corridors. Therefore, it can be safely said that developing countries are the main beneficiaries: in 2020, 73.9% of these financial flows went to them, or $325 billion. International remittances are thus the second-largest source of external financing for developing countries, after foreign direct investment.

Remittances from Cameroon are playing an important role in the socio-economic development of the country. The impact of remittances is now recognized in Cameroon as constituting an important flow of foreign currency and directly reaching hundreds of thousands of household

1.2 Statement of Problem and Justification of Study

Cameroon has always been an area of mass investment from the abroad in its colonial days; this explains why Cameroon’s economic performance was encouraging in the 1950s, 1960s and 1970s. This has however experienced a setback since the outbreak of the 1980s. Indeed like most developing countries, Cameroon, has been experiencing development difficulties since 1990s due to poverty, economic crisis, soaring population growth, external debt burden, the poorly controlled urbanization of cities and adjustment policies that are often not suited to the national situation. This unfortunate downswing of Cameroonian economy however encourages a high rate of migration, particularly emigration and in turn a high rate of remittances inflows to the country. However, while the volume of remittances to Cameroon has been growing significantly over the years, that is between $3,478,725 in 1979 and $152,313,900 in 2007, $93,622,350 as of 2010, and the most recent being $297.25million as of 2021, it has not received much attention (World Bank,2021).

There are many factors that impede the effectiveness of remittances flows both in the receiving and sending countries that need to be considered when designing policies and regulations aimed at improving normal remittances flow and increasing their productive use. These factors are well summarized by Russel (2005) including: a stable political environment, low rate of inflation, low black market exchange rate, increase in domestic interest rate, currency devaluation, secure means of transferring remittances and national banking servicing in country of employment. With regards to the above impediments the following measures have been implemented in some countries by researchers and other stakeholders with the objective to increase the benefits of remittances. Some of these measures includes: the measures to strengthen the remittances transfer mechanisms, and measures to influence remittances flow, measures to manage remittances for development, and measures to increase productive use and impact of remittances. Despite the fact that microeconomics based researchers have pointed out that even  if remittances are totally spent on consumption, there will still be benefits to receiving economy through the multiplier effect; there is no macroeconomic evidence about the impact of remittances on the long term growth (Chami et al, 2003).

1.3 Research Questions        

This research study is therefore structured to answer the following questions; the main research question is what the impact of remittances on economic growth is? The specific research questions are;

1. What is the government role in aiding the flow of remittances?
2. What are the various routes by which remittances enter the country?
3. To what extend does remittances influence economic growth?

• Objectives of Study

The objective of this study is divided into two parts. We have the main objective and the specific objectives. The main objective of this research is to analyze the impact of remittances on the economic growth of Cameroon. Specific research objectives of this study include to;

1. Identify the government’s role in aiding the flow of remittances
2. Analyze the routes which remittances flow into a country

• Examine the influence of remittances on economic growth
  • Research Hypothesis

1. Government’s role in aiding the flow of remittances will have no significant effect on the economic growth of Cameroon.
2. The routes through which remittances flow into a country would have no effect on the economic growth of Cameroon.
3. Remittances has no significant effect on the economic growth of Cameroon.