Out of inequality and poverty: Evidence for the effectiveness of remittances in Sub-Saharan Africa

•Poverty is used as the metric for measuring remittances effectiveness.•Remittances reduce poverty and have income-equalizing effects.•The financial sector enhances the poverty- and inequality-reducing effects of remittances.

This paper takes a new look, from a macro perspective, at the issue of remittances effectiveness. An important point of departure for this study is the adoption of poverty reduction, as contrasted with economic growth, as the metric for measuring remittances effectiveness. By controlling for time-invariant country-specific effects and endogeneity, I find that remittances reduce poverty, but the size of the poverty reduction depends on how poverty is being measured. Additionally, remittances have income-equalizing effects. A well-functioning financial sector enhances remittances effectiveness in Sub-Saharan Africa.