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Asymmetric Effects of Oil Prices on Remittances: Evidence from Sub-Saharan Africa

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Exploring the nexus between oil prices and remittances is critical to both remitting and recipient countries. Employing non-linear panel autoregressive distributed lag (NARDL) approach, we examine the relationship for 32 sub-Sahara African countries over the period 1986-2019. The results reveal that: (1) changes in oil prices and remittance inflows are asymmetrically associated only in the short run for the entire sample; (2) when the sample is divided into middle and low-income subgroups, asymmetric effect is confirmed for former subgroup only in the long run, while it is confirmed for latter subgroup only in the short run, (3) in the long run, positive movement in oil prices reduces remittances for the sample and in the middle income subgroup, whereas it increases remittances in the low-income subgroup, (4) Negative oil price movement reduces remittances for the entire sample and the two subgroups; (5) in the short run, a reduction in oil prices increases remittance inflows only for the entire sample and for the low-income subgroup. These results suggest that policymakers in SSA should implement policies that will reduce oil price risks on remittance inflows especially in the long run.

Abstract

Exploring the nexus between oil prices and remittances is critical to both remitting and recipient countries. Employing non-linear panel autoregressive distributed lag (NARDL) approach, we examine the relationship for 32 sub-Sahara African countries over the period 1986-2019. The results reveal that: (1) changes in oil prices and remittance inflows are asymmetrically associated only in the short run for the entire sample; (2) when the sample is divided into middle and low-income subgroups, asymmetric effect is confirmed for former subgroup only in the long run, while it is confirmed for latter subgroup only in the short run, (3) in the long run, positive movement in oil prices reduces remittances for the sample and in the middle income subgroup, whereas it increases remittances in the low-income subgroup, (4) Negative oil price movement reduces remittances for the entire sample and the two subgroups; (5) in the short run, a reduction in oil prices increases remittance inflows only for the entire sample and for the low-income subgroup. These results suggest that policymakers in SSA should implement policies that will reduce oil price risks on remittance inflows especially in the long run.

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