The impact of external remittances on poverty reduction in Ghana
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Date
JULY, 2008
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Abstract
This study examines the impact of workers’ remittances on poverty reduction in Ghana using time series data over the period 1980-2002. Employing modern time series econometric techniques such as unit root tests, cointegration and error correction techniques within an ARDL framework, which has been found to yield more robust estimates, the study revealed intriguing results. The results suggest that, remittances do have a significant impact on poverty reduction through increasing income, smoothing consumption and easing capital constraints of the poor. Also remittances were found to have no direct positive impact on economic growth. Nonetheless, they were found to have an indirect impact on economic growth through investment and human capital development. Among numerous policy recommendations, the study suggested policies which aimed at sustained increases in remittances through the formal channel where significant amounts can be recorded and sharpen the impacts particularly to the poor. Furthermore, transaction costs in sending remittances should be lowered and also barriers to official remittance channels should be removed. For example, capital requirements on remittance services should be lowered and formal financial intermediaries should be widened by allowing domestic banks to operate overseas. Finally, it is strongly recommended that, the government could develop appropriate training or education programs to assist returning migrants or remittance receipts in making effective investment decision. In addition, the appropriate infrastructure should be developed to generate favourable investment climate and to complement investments out of remittances.
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A Thesis submitted to the Department of Economics, in partial fulfillment of the requirements for the award of Master of Arts Degree in Economics,