STRUCTURAL BREAKS AND SOCIOECONOMIC FACTORS IN THE REMITTANCE-ECONOMIC GROWTH NEXUS IN GHANA

Abstract

The direction and degree of association between inward remittances and growth in economic growth literature has been largely inconclusive in the literature. Findings from Ghana are no different even in the presence of various moderating variables. Based on the aggregate Cobb-Douglas production relationship, this research seeks to address this lack of consensus by considering the role that structural breaks play in the remittance–growth relationship in the presence of socioeconomic factors that proxy as institutional variables in Ghana. First, we conduct the Johannsen cointegration analysis using data from 1984 to 2019. We find that although there are two cointegrating relationships among all the variables tested, there's no significant relationship between remittance and growth using both FMOLS and DOLS estimators.  Second, when a level structural break is introduced into the unit root tests, the I (1) properties of all variables are non-existent and OLS regressions provide ample evidence that remittances and socioeconomic factors have a strong, positive and significant impact on economic growth in Ghana. The evidence suggests that there is a need to include structural breaks when investigating the remittance–growth relationship in Ghana to avoid misspecifying models and hence making inaccurate forecasts and policy decisions.

 Keywords: Remittances, Economic growth, Structural breaks, Cointegration, Cobb-Douglas function