Remittances and the Brain Drain in Ghana: A Computable General Equilibrium Approach

This paper presents a computable general equilibrium (CGE) framework to numerically examine the impact of 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 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 the public administration sector, then more remittances are needed to offset the negative impact of more brain drain. Furthermore, if the brain drain occurs in all sectors by more than 5 percent, then even a 30 percent increase in remittances to both rural and urban households is not large enough to offset the negative impact of the brain drain, thus, eventuating in the Ghanaian economy being damaged as a whole.