The Effect of Migrants Remittances on House Hold Welfare and Economic Development

The Effect of Migrants Remittances on House Hold Welfare and Economic Development

INTRODUCTION

BACKGROUND OF THE STUDY

Rural households employ migration as a major investment and livelihood strategy to mitigate the effects of adverse economic conditions, climate variability and food insecurity. This is the case in most developing countries; Remittances are financial flows into households that do not require a quid proquo in economic value (Addison, 2005). They are usually viewed as private financial aid that flows directly into the hands of households and the fact that they tend to be counter-cyclical suggests that very often they serve as an important source of both income and consumption smoothing strategies for vulnerable poor and non-poor households. Similarly, the literature analyzing the impact of remittance flows shows that these flows are beneficial at all levels – the individual, the household, the local community and the national level – and indicates that if well managed they can help reduce poverty at these four levels. Buch and Kuckulenz (2002) also report that worker remittances constitute an increasingly important mechanism for the transfer of resources from developed to developing countries and are the second-largest source, behind foreign direct investment, of external funding for developing countries. The economic impact of remittances has been considered beneficial at both the micro and macro levels at least in the short term and there is increasing evidence that remittances from abroad are crucial to the survival of communities in many developing countries (Quartey and Blankson, 2003). However, there is scant literature available on the method and techniques for assessing the magnitude of both the micro and macroeconomic impact of remittances. The relevant literature concentrates primarily on the main uses of remittances and their impact on poverty, income inequality and development, with little or no reference to economic shocks to income. The study seek to appraise the Effect of migrants remittances on household welfare and economic development

 STATEMENT  OF  THE PROBLEM

Migrant remittances affect the stability of the exchange rate and inflation, depending on how the inflows are managed. For example, Amuedo-Doranates and Pozo (2002), testing the impact of workers’ remittances on real exchange rate using a panel of 13 Latin American and Caribbean nations, argue that workers’ remittances have the potential to inflict economic costs on receiving economies. Their analysis revealed that these flows in the form of gifts usually cause growth of parallel foreign exchange markets, resulting in the appreciation of the real exchange rate. They also create dependency on unreliable sources of foreign exchange that are subject to cyclical fluctuations. In a related study, Swanson (1979) has also posited that although remitted earnings may prove to be useful in balance of payments problems, they generally contribute little to Economic growth. The importance of remittances has also been examined empirically in terms of its impact on poverty. Adams and Page (2003), using data from 74 low- and middle-income developing countries, found that international migration has a strong statistical impact on reducing poverty: On average, a 10% increase in the share of international migrants in a country’s population will lead to a 1.9% decline in the share of people living in poverty. Thus, international remittances strongly affect poverty and they tend to minimize the negative effects of economic shocks in an economy. Whilst some researchers hold the view that remittance flows reduce income inequality between the rich and the poor, others are of the view that the reverse is true because it is the rich that are able to get their family members to migrate. In a study based on a survey of 1,000 households in rural Egypt, Adams (1991) used income data from households with and without migrants to determine the effects of remittances on poverty, income distribution and rural development and found that although remittances were helpful in alleviating poverty, paradoxically they also contributed to inequality in the distribution of income. By contrast, Gustafson and Makonnen (1993) found that in Lesotho, migrant remittances actually decrease inequality. Chimhowu et al. (2004) support the view that remittances do increase inequality at the local level, but at the international level they transfer resources from developed to developing countries.

The problem confronting the study is to appraise the effect of migrants remittances on household welfare and economic development.

OBJECTIVE   OF THE STUDY

The Main Objective of the study is to appraise the Effect of migrants remittances on household welfare and economic development; The specific objectives include

1 To determine the relevance of migrants remittances on household welfare and economic development.

2 To determine the Effect of migrants remittances on household welfare. 

3 To determine the Effect of migrants remittances on economic development.

RESEARCH QUESTIONS

1 What is the level of level of inflation and unemployment in Ghana?

2 What is the impact of inflation on unemployment?

3 What is the result of Philips hypothesis?

STATEMENT OF THE HYPOTHESIS

The statement of the hypothesis for the study is stated in Null as follows

HO   The result of Philips hypothesis is not applicable in Ghana.

SIGNIFICANCE OF THE STUDY

The study addresses inflation and unemployment nexus in Ghana. A result of Philips hypothesis. It provides relevant data for the effective formulation and implementation of policies which will further stimulate the economy to economic growth and development.

LIMITATION OF THE STUIDY

The study was confronted with logistics and geographical factors

DEFINITION OF TERMS

REMITTANCES DEFINED

Remittances are financial flows into households that do not require a quid proquo in economic value (Addison, 2005). They are usually viewed as private financial aid that flows directly into the hands of households and the fact that they tend to be counter-cyclical suggests that very often they serve as an important source of both income and consumption smoothing strategies for vulnerable poor and non-poor households.

INFLATION DEFINED

Inflation is a sustained increase in the general price level of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation reflects a reduction in the purchasing power per unit of money. It is a loss of real value in the medium of exchange and unit of account within the economy.

MONETARY POLICY DEFINED

Monetary policy is the process of controlling the supply, availability, cost of money or rate of interest. Monetary policy is usually used to attain a set of objectives oriented towards the growth and stability of the economy

EMPLOYMENT RATE DEFINED

This is the percentage of the labor force that is employed and also constitute one of the economic indicators that economists examine to help understand the state of the economy.