Migration, Remittances and Human Capital Development in Ghana

In the past few decades, there has been a steady increase in the amount of remittances to most developing countries, often surpassing the amount of development aid. In Ghana, remittances have become an important source of in-come to most households. However, there has been little or no empirical work to look at the effect of remittances on human capital development in Ghana. This paper aims to explore the extent to which Ghanaian households have used remittances in developing the human capital capacity of children between 5 and 19. School enrolment, years of schooling completed, expenditure on education and number of children enrolled in school are used as a measure of human capital. Instrumental variables approach is used to overcome the endogeneity problems associated with remittances. The choice of instruments used is corre-lated with remittances but will only affect human capital through its effects on remittances. The instruments used are number of remitters to the household and an interaction between the number of bank branches and origin of remittances. The interaction between the two variables shows variations in labour market outcomes at the home community and the destination of the migrant, and costs associated with receiving remittances, hence explaining why different households with similar characteristics will receive varying amounts of income from remittances. After resolving the issues associated with endogeneity, the main conclusion from the analysis is that, to a large extent remittances have a positive and significant impact on all outcome variables of interest, with rural households experiencing the largest effects of the impact of remittances on probability of school enrolment, number of children in school and years of schooling completed. The results also indicate that not using instruments to estimate the coefficients will lead to the over estimations of the results. The extent of overestimation is given by the coefficient of transformed ρ (atanhrho_12) and range from 2.6 to 34.2 per cent.