Total Factor Productivity Growth and Human Development: the Role of Remittances in Africa

Using panel data of 21 African countries over the period 2010-2014, we examine the effect of total factor productivity (TFP) on human development contingent on the level of remittances in Africa. We contribute to literature in three folds: 1) we conceptualise how remittance impact human development through TFP; 2) we empirically test the interactive effect of remittance and TFP on human development using the system generalised methods of moments (SGMM); 3) we used the inequality-adjusted human development index as a proxy for human development which is a better measure. We find that TFP has a negative effect on human development whilst remittances have a positive effect. Their interaction effect turns out to be positive suggesting that countries that receive higher remittances are able to transform the negative impact of TFP into a positive one.