CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Remittance inflow have had considerable interest from international financial institutions, donor funds, academics, banks and policymakers in recent years. The World Bank (2019) estimated that remittances to developing economies excluding China were significantly higher than the foreign direct investments to these economies. As a result of this increased inflow, there have been calls to investigate the role remittances inflow play in the development of their receiving countries. remittance inflow can be defined as money sent back home by a foreign-based worker.

This also involves social remittances, which are the ideas, values, skills and behaviours that they bring back into their country whilst visiting home (Levitt & Lamba-Nieves, 2011). In the case of monetary remittances, the funds are primarily the private savings of diaspora workers intended to be sent to their families back home to spend on basic needs such as food, clothing and other expenditures; and are highly regarded as a driver of their home economies.

Nowadays, remittance has risen considerably in underdeveloped countries. Its inflow was increased from USD 96.5 billion to USD 160 billion, which shows a 65 per cent higher in 2004 than in 2001; this figure again increased to USD 300 billion in 2007, USD 372 billion in 2011 and USD 401 billion in 2012 growing by 5.3 per cent compared to 2011 and it is expected to grow at an average of 8.8 per cent annual rate during 2013-2015 to about $515 billion in 2015 (World Bank, 2013). (World Bank, 2013).

Remittances have become a source of money in developing nations, bringing economic growth and development through lowering household poverty and increasing consumption, as well as raising investment in both human and physical capital, resulting in less vulnerability to natural and economic shocks (African Banker, 2013).

Money sent home by nationals living abroad paints a different image; it has increased dramatically over the last decade, with annual inflows to Africa expected to exceed $60 billion by 2014, up from $11.4 billion in 2000. As a result, despite the economic downturn in their major source countries and the impact on migrants’ jobs, remittances provide a chance for many African countries to raise foreign currency (United Nation Economic Commission for Africa, 2013).

Remittances have shifted seriously to reducing poverty and promoting human development. This is well documented and often well reported to anchor and influence the overall development process (Ratha, 2007) and (Das & Serieux, 2010). One of the most noticeable effects of globalisation in the world today is the great increase in migration among countries. The interconnectedness of the world makes it possible for people to move in considerable numbers across national boundaries in search of greener opportunities on foreign soils. Geographic barriers have been reduced; distances are shortened thanks to recent means of communication which have contributed to the facilitation of migration.

In 2013, inflows of remittances to sub-Saharan Africa increased by 3.5% (World Bank, 2014). The increase was not distributed evenly across the continent, however. East African countries experienced significant gains in remittance inflows while those in the West African sub-region experienced only a marginal increase (World Bank, 2014).

Despite this, organizationally, the Economic Community of West African States (ECOWAS) ranks second in terms of the collective value of remittances in-flows by member-states falling behind the Southern African Development Community (SADC). Research has shown that, despite the West African countries receiving relatively less in remittances, the impact of remittances on the economies of those countries has been positive (UNECA, 2013). Remittances have helped the region reduce poverty, its most pressing challenge, supplemented household incomes, provided working capital and, above all, created multiplier effects within the economy through increased spending (UNECA, 2013).

There is a growing discussion about how migrant remittances are used and how much they contribute to the migrants’ home country (Ratha, 2003). Total remittances originate in developed countries, with the United States of America having a prominent role. It is thought that remittances from the south-south and even north-south flows are significant, but one thing is certain: data is scarce (Ofeh and Muandzevara, 2017).

In addition, there are flows of remittances that cannot be measured because they are sent through informal channels such as ‘Hawala’ and ‘Hundi’ in South Asia (Pakistan) and ‘Pasala’ in the Philippines (Yang, 2011). So, it is therefore difficult to evaluate the real value of migrant remittances on economic growth since most remittances are sent informally (Ofeh and Muandzevara, 2017).

Most often, people use unofficial channels like Hundi and Hawala to reduce the sending cost of remittances which are called informal remittances. Informal channels include money earned abroad brought back by family, friends or the migrant themselves (Larsson and Ångman, 2014) or through a network of relationships like friendship, kinship and regional attachment (Rahman & Yeoh, 2008). Government supervision and laws are associated with formal channels such as banks, postal services, Money Transfer Operators (MTO) and other wire transfer services.

In most cases, these channels are related to high transaction costs and exchange loss (Sutradhar, 2020). However, because of recent attempts to fight money-laundry these informal channels could be decreasing and are expected to be higher in countries with less developed financial markets (Giuliani and Ruiz-Arranz, 2009).+

The concrete reason for most households in Cameroon to have someone abroad so that they can lean on for remittance help is finance (Baye, 2005). Locally and prestigiously, those abroad in Cameroon are called ‘Bush-fallers’. Remittances as part of GDP of 2008 in Cameroon were 0.8% and since 2001 migrant remittances have experienced a considerable increase. The estimates of the World Bank in 2009 indicated that migrants’ remittances to Cameroon as from 2000 were 11million US dollars, 103 million US dollars in 2004 and 167million US dollars in 2008.

The World Bank ranked Cameroon among the top 10 recipients of remittances within the group with estimated remittance of 0.1billion US dollars (World Bank, 2011). It is difficult to evaluate the real value of migrant remittances on Cameroon economic growth since most remittances are sent informally. At the same time, migration entails a brain drain that hinders economic growth (Berry & Soligo, 1969, and Rivera, 1982). Also, the real impact of migrant remittances on Cameroon‟s economy could be minimized by volatile exchange rates and domestic inflation.

1.2 Statement of the Problem

There are different conflicting perspectives regarding the impact of remittance on economic growth. These are optimists (remittances have a positive effect on economic growth through subsequent increases in investment and human capital) and pessimists (remittances negatively affect economic growth through inflation and moral hazards resulting from reduced labour supply) (Haas, 2007).

According to migration optimists, there are positive indirect growth effects of remittances, through economic channels such as increased saving, investment in physical and human capital (such as education and health), technological progress (Ahortor and Adenutsi, 2008), creation of extra employment, ease of domestic credit constraint (Giuliano and Ruiz-Arranz, 2005), and the overall multiplier effects of consumption on aggregate demand and output (Adenutsi, 2010; Balde, 2010; Stahl and Arnold, 1986).

Migration pessimists, on the other hand, argue that remittances have either negative or no impact (IMF, 2005) on economic growth, as remittance flow can cause adverse behavioural changes at the household level that may lower their developmental impact (Sami and Mohammed, 2012). Their rationale is that remittances are mostly used for status-oriented, consumption and economically unproductive savings and investment instead of productive investments as argued by migration optimists (de Haas, 2007; Chami et al., 2005). They further argue that remittances are received by households who have a high marginal propensity to consume and create moral hazard problems. This reduces labour supply, lead to reduced human capital investment as well as negatively affect economic growth through inflationary and exchange rate pressure.

Studies done in Cameroon in general, have concluded that remittances have a positive impact on the economic development of the country.

Even though studies have proven that remittances have a positive impact on the economic growth of Cameroon, the reality seems to be contradictory because remittances’ impact is not physically felt on the country’s growth. Instead, the country’s development is seen to be slow and somehow reluctant, making us doubt the impact of remittances on the economic growth of the country. Even though there is a considerable amount of remittances inflow in the country, economic growth is still lagging. Pushing many people to think that the Cameroonian diaspora has no impact on the economic development of the county.

Another major drawback to this issue is the difficulties encountered to evaluate the real value of migrant remittances on Cameroon’s economic growth since most remittances are sent informally. At the same time, migration entails a brain drain that hinders economic growth (Berry & Soligo, 1969, and Rivera, 1982). Our problem, therefore, is to assess the effects of remittance inflow and private borrowings on economic growth in Cameroon during the time frame of 2000-2020.

1.3 Research Questions

The question posed by this study is: Is there a relationship between remittance inflow and economic growth in Cameroon?

1. What is the impact of remittance inflow on the economic growth of Cameroon?
2. Is there a short-run and long-run relationship between remittance inflow and economic growth in Cameroon?

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