The Impact of Inward Remittances on Economic Growth in Ghana

Abstract

Ghana was the second largest recipient of remittances in West Africa after Nigeria in 2018, with an underlying economic growth rate which declined from 8.1 percent in 2017 to 5.6 percent in 2018 anchored on industrial-sector growth. The study re-examined the effect of inward remittances on economic growth in Ghana. The ARDL estimation technique is used to test for the relationship between remittances and economic growth, using annual data from 1970 to 2016. The traditional Granger causality test was also applied to explore the direction of causality between remittances and economic growth. The results revealed that remittances had a negative long-run effect on growth and a positive effect on economic growth in the short-run. The study found no granger causality between economic growth and remittances in Ghana for the period of the study. FDI, which appears to have a relatively stronger appeal to support economic growth in Ghana, must be focused on. Sound economic and political institutions will be needed to ensure that the economy benefits fully from inward remittances by directing them from consumption to savings avenues and investment opportunities.