Financial development, international migrant remittances and endogenous growth in Ghana

Abstract

Purpose: This paper seeks to provide further insights into understanding the finance-growth nexus by verifying the hypothesis that financial development promotes economic growth through its capacity to attract increased international migrant remittances to Ghana. Design/Methodology/Approach: A dynamic equilibrium-correction mechanism model for the period 1987(3)- 2007(4) was estimated following the Johansen cointegration procedure. This approach produced maximum likelihood estimators of the unconstrained cointegrating vector, and suggested the number of cointegrating vectors without relying on an arbitrary normalization. Findings: The findings reveal two stylized facts with reference to Ghana. First, although financial development Granger-causes international migrant remittance inflows, it is in itself directly detrimental to endogenous growth. Second, international migrant remittance inflows are statistically significant in explaining variations in endogenous growth in the short run as well as in the long run. Practical Implications: Since directly, financial development hampers endogenous growth, but Granger-causes increased inflows of migrant remittances, and these remittances impact positively but marginally on endogenous growth, it follows that the sequencing of implementing Ghana's financial reform programmes should be reexamined, whilst an enabling environment is created to induce Ghanaians living abroad to remit home through official channels. Originality/Value: International migrant remittances were found to be statistically significant in promoting endogenous growth, albeit marginally. Financial development does not directly engender growth, unless it succeeds in attracting non-debt foreign capital in the form of remittances through the formal sector. Financial development causes migrant remittance inflows which impact positively on growth. Keywords: Financial Development, Economic Growth, International Migrant Remittances, Ghana INTRODUCTIONA well-functioning financial sector is expected to attract idle funds for financing economic growth and development projects. Generally, international migrant remittances are highly significant to low-income economies constituting about 2% of their gross domestic product (GDP) and 6.2% of their imports (World Bank, 2003). Besides, these remittances have, in recent years, surpassed foreign direct investment or official development assistance, export revenues, and foreign aid (Giuliano and Ruiz-Arranz, 2005; World Bank, 2006). Consequently, in recent years, international migrant remittance flows to developing countries have attracted the attention of policymakers, researchers and scholars. The rising interest and enquiry into the continuous increasing remittance flows to developing countries, notwithstanding, experts have expressed divergent views on its implications for economic growth and development. On one hand, remittances are believed to be a catalyst for accelerated economic growth and development as they increase purchasing power of households and se...

Remittances, Development Level, and Long-Run Economic Growth

“…Researchers have found both positive [1][2][3][4][5][6][7][8][9][10][11][12][13] and negative [14][15][16] impacts of remittances on economic growth. Also, there are studies that show that no impact of remittances on economic growth [17].…”

Effect of International Remittances on Inflation in Ghana Using the Bounds Testing Approach

“…While research has shed some light on the potential influence of remittances on education (Brempong-Gyimah, 2014), Poverty (Quartey 2005), economic growth (Addison, 2004, Owiafe, 2008 and financial development in Ghana (Adenutsi, 2011), no attention has been given to the potential effect of these remittances on inflation. The objective of this paper is therefore to quantitatively investigate the effect of international remittances on inflation in Ghana using the bound testing approach.…”

Household Inward Remittances and Banking Sector Development: The Nigerian Experience (1977 – 2014)

“…Bidirectional relationship was found between remittance and bank deposit and remittance -money supply running form remittance to bank deposit and money supply Adenutsi (2011) pointed out that a well-functioning financial sector is expected to attract idle funds for financing economic growth and developmental projects in remittance recipient economies. This notwithstanding, a seemingly general consensus among developmental economists exist that the development of the financial sector is a necessary condition for attracting increased external private capital of all sorts.…”

“…To explore the relationship between remittance and financial development, the author adopted (2011) as FD = ά + βRemitt + β2 Xt + et ……………………………………………….. (2) Where, t refers to the time period from 1981 to 2013 Remit refers to the ratio of remittance to GDP. X is a Vector of control variables.…”