Financial development, international migrant remittances and endogenous growth in Ghana

Abstract

Purpose

The purpose of this paper is 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 re‐examined, 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.

Citation

Adenutsi, D.E. (2011), "Financial development, international migrant remittances and endogenous growth in Ghana", Studies in Economics and Finance, Vol. 28 No. 1, pp. 68-89. https://doi.org/10.1108/10867371111110561

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