Relationship between Remittances and Households’ Expenditures in Benin: ARDL Model Approach

Abstract The current state of the art on the relationship between remittances and households’ expenditures has remained inconclusive. This study contributes to the debate by investigating this relationship both in the short and long run taking evidence from Benin. World Bank open data from 1974 to 2019 were analyzed using the Autoregressive distributed lag (ARDL) to cointegration model. The study found no long run relationship between remittances and households' expenditures. In the short run, the relationship is found to be positive and significant. This demonstrates that remittances received by households increase their expenditures only in the short run. Control variables such as official development assistance and trade openness used as are found to be negatively associated with households' expenditures. An increase of any of these, does not result to an increase in households’ expenditures both in short and long run. To conclude, the study recommends policymakers in countries like Benin to design and implement policies that encourage remittance inflows (among all other foreign capital inflows) and promote its efficient use by remittance-receiving households as it can contribute to poverty reduction.