Remittances and Poverty Reduction: Evidence from Ghana

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Over the past decade, migrant remittances to many less developing countries have increased substantially – much faster than foreign direct investment (FDI) and foreign aid. For example, the annual average of remittances to Ghana as a share of GDP increased by about 214 percent from 1990-1999 period to 2000-2006. During the same period, FDI/GDP and Aid/GDP increased by only eight percent and 16 percent, respectively (WDI 2007). This paper investigates the effects of remittances by foreign migrants on poverty alleviation in Ghana. Using data from the first three rounds of Afrobarometer survey data and Wave 5 of Ghana Lining Standards Survey, we investigate the effects of remittances by foreign migrants on the probability of a household being poor. We find that remittances from foreign countries greatly reduce the probability that a family will be poor, all things equal. The results have implications for achieving the Millennium Development Goals of poverty reduction, increased education, and improvement in health.