International Remittances and Brain Drain in Ghana

Abstract

Abstract. This paper presents a static computable general equilibrium (CGE) framework to numerically examine the impact of international remittances and the brain drain on poverty reduction as well as income inequality in Ghana. The generalized framework with the latest Ghanaian input-output table of year 2005 with 59 different production sectors provides the following results: On the impact of international remittances, more remittances reduce poverty, and expand the Ghanaian economy. On the impact on income inequality, it depends on who receives more remittances. If the rural (urban) households receive more remittances, then income inequality shrinks (widens). On the impact of the brain drain, it is negative to both poverty reduction and income inequality, even if the externality effect of the brain drain is taken into account. On the overall impact of both remittances and the brain drain in Ghana, income inequality becomes more severe. On the other hand, the overall impact on poverty reduction, it depends on the amount of remittances as well as the sector where the brain drain occurs. As long as the brain drain occurs in either the education or the health sector, then the positive impact of remittances outweighs the negative impact of the brain drain. However, if the brain drain occurs in all sectors, then the overall impact would result in the damage of Ghanaian economy. Even though the positive impact of international remittances is taken into account, the Ghanaian economy has been damaged by the brain drain, and emigration from Ghana has resulted in more income inequality and lower income.

Keywords. Ghana, Remittance, Brain Drain, Poverty, Income Inequality, Computable General Equilibrium (CGE) Model, Simulation.

JEL. C68, D58, I32, O15.