The Impact of Remittances on Economic Growth: Evidence from Ghana

Abstract

Purpose Amid growing global remittance flows and their associated impact on economic performance, this paper provides empirical evidence on the effect of remittances on economic growth. Design/Methodology/Approach Annual time-series dataset and the Fully Modified Ordinary Least Square (FMOLS) semi-parametric econometric technique are used to establish the effect of remittance variables on economic growth. Findings Findings indicate that remittances have a positive effect on economic growth, and since official estimates of remittances tend to considerably understate the actual volume of remittance flows, more accurate data on remittances is likely to reveal an even more pronounced effect on growth. The study also revealed that the exchange rate in Ghana tends to have a negative effect on remittances, and therefore, in an attempt to increase GDP, government can seek to manage the level of the exchange rate through monetary policy tools. Practical Implications For policy purposes, we recommend that foreigners, investors and policy makers and managers, must take into consideration that difference in remittance patterns as they influence individuals behaviour, investment decisions, and consequently the economic performance. Originality/Value To the best of our knowledge, this study provides the first empirical evidence of disaggregated remittances on economic growth in Ghana. This study uses yearly data to provide empirical evidence that remittances determines economic performance.