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Abstract

There is a general belief that Sub-Saharan Africa has the poorest record of international remittances because, due to deficiencies in the region's financial systems, a greater proportion of remittances passes through informal channels. This article examines the interactive impact of financial development on remittances to the region. Using a panel data covering 32 countries in the region from 1995 to 2009, it finds evidence of weak financial infrastructure constraining the flow of remittances. It also shows that the higher the level of a country's infrastructural development, the greater the impact on remittances. The article establishes that the impact of financial development and institutional quality is greater in emerging markets than in developing economies, implying that improving the financial system and institutional structures in Africa should be at the centre of the current policy efforts to optimize the benefits of remittances.