Abstract:

This study investigates the impact of remittances on household consumption patterns in The Gambia using a Structural Equation Modeling (SEM) framework. Remittances have become an increasingly important source of external finance for developing economies, often surpassing foreign direct investment and aid flows, yet their effects on household-level welfare and consumption dynamics remain underexplored in the Gambian context. Drawing on nationally representative survey data and macroeconomic indicators, this research applies a series of SEM specifications—including direct effect models, full structural models with mediators, and moderated mediation models—to capture both the direct and indirect pathways through which remittances shape household consumption. The analysis reveals that remittances exert a significant positive influence on household consumption, with notable heterogeneity across expenditure categories such as food, education, and health. Furthermore, the findings suggest that remittances not only alleviate liquidity constraints but also interact with macroeconomic conditions—such as real exchange rate movements and inflation—thereby moderating their long-term impact on consumption stability. The robustness checks confirm the consistency of these results across alternative specifications. The study contributes to the literature by providing empirical evidence on the multifaceted role of remittances in enhancing household welfare while highlighting potential vulnerabilities to external shocks. Policy implications emphasize the need for strategies that maximize the developmental benefits of remittances, such as channeling them into productive investments, strengthening financial inclusion, and maintaining macroeconomic stability.