As more and more people send money to Gambia, certain effects occur on the economy of Gambia. The goal of the monetary policy for each country is to make sure that its monetary policy is a stable set of prices and output growth.
To achieve this, stable demand for money is needed. Hence the demand for money is one of the main functions in forming an effective and appropriate monetary policy.
The monetary authority must be able to put control on the monetary aggregate. A few kinds of literature studied the need for money in The Gambia, which only included exchange rate in the money demand function. As per Mundell (1963), the demand for money, besides the income and the interest rate, is dependent on the exchange rate.
Since Mundell didn’t provide any clear theoretical or empirical explanation, there were more arguments that if the local currency depreciates the value of the foreign assets held by the domestic residents. This situation is known as the expectations effect of the exchange rate changes.
The literature on the need for money is vast. Remittance to Gambia may improve the well-being of a Gambian family that is left back home and boost the economies of the country.
They may also create a culture of dependency in the receiving state or country that also lowers labour force participation, promotes conspicuous consumption, and slows economic growth.
Remittance in this world shows the primary international financial resources that exceed foreign direct investment flows. For many years, there have been several debates on the sources of economic growth in most developing economies and why a few countries reflect robust economic growth compared to the rest.
The Gambia is one of the few markets and is also import oriented economy which is, at present, one of the very least performing economies in Africa. It has a real GDP growth stagnated at 0.9% in 2014. People often do online money transfer to Gambia, which helps growing economy.
Its government estimates the projected a rebound in 2015 to 4.7%, underlying the economic data such as the tourist arrivals, private credit growth, and the trade data. There is considerable interest by policymakers and researchers to understand the effect of trade on the economic development of The Gambia.
However, literature, particularly the empirical economic analysis over economic growth, varies for the data sets, financial techniques and mainly produces conflicting results.
The Gambia has no critical natural resources such as minerals. It also has a limited agricultural base. Around 70 to 80 per cent of the population is mainly dependent on the corps and livestock for livelihood.
Regarding the impact of the trading and to do money transfer to Gambia, some of the literature reviewed supports that the destination of the country’s exports highly matters.
When it comes to promoting economic growth, others have argued that the effect mainly depends on trade specifications. Once there is a main trade specification, the positive and vital impact on economic growth may be found. The rest of the studies confirm the essential positive relationships between trade liberalization and economic development.
Gambia shows a long-run relationship in the demand of the actual M2, but this relationship is unstable. As per their findings, the exogenous output shocks, financial innovations, the changes in income velocity contribute to the instability.