Impact of remittances on male and female labor force participation patterns in Africa: Quasi‐experimental evidence from Ghana

• DOI: http://doi.org/10.1111/rode.12668
• Author: Edward Asiedu,Nurokinan Chimbar
• Published date: 01 August 2020
• Date: 01 August 2020

Rev Dev Econ. 2020;24:1009–1026.

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1009

wileyonlinelibrary.com/journal/rode

Received: 9 November 2018

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Revised: 24 February 2020

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Accepted: 25 March 2020

DOI: 10.1111/rode.12668

REGULAR ARTICLE

Impact of remittances on male and female labor

force participation patterns in Africa:

Quasi-experimental evidence from Ghana

EdwardAsiedu1,2

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NurokinanChimbar1

This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reproduction

in any medium, provided the original work is properly cited.

© 2020 The Authors. Review of Development Economics published by John Wiley & Sons Ltd

1University of Ghana Business School

(UGBS), Legon, Accra, Ghana

2Chair of Development Economics,

University of Passau, Passau, Germany

Correspondence

Edward Asiedu, University of Ghana

Business School (UGBS), Legon, Accra,

Ghana.

Email: edasiedu@ug.edu.gh

Abstract

In this paper, we examine how remittances, an outcome of

labor mobility, affect labor market activities in Ghana using

detailed household and individual-level data. This is im-

portant, considering the extensive literature that has docu-

mented the remittance–poverty reduction nexus. First, we

find a strong negative association between household remit-

tance-receiving status and individual labor supply decisions

using instrumental variable estimation techniques. Second,

we find the depressing effect of remittances on labor sup-

ply decisions to be much stronger in rural areas. Rural

women who reside in remittance-receiving households are

less likely to be in the labor force compared with those who

do not reside in such households. Remittances have very

little impact on labor supply decisions in urban areas. Our

findings support that remittances can exacerbate long-term

poverty reduction in rural areas through lower labor force

participation, and as such rural-based and gender-based

interventions may be needed to help redirect remittance

income.

KEYWORDS

labor markets, quasi-experiment, remittances, reservation wage, rural

women, rural men, Ghana, sub-Saharan Africa

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ASIEDU

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INTRODUCTION

Migration within and from and remittances in and into sub-Saharan Africa have increased consid-

erably in the past few decades (see Ratha, 2005; Teye et al., 2019). Thus, although the amount of

external financial flows to sub-Saharan Africa has declined over the past decade—partly due to the in-

stability in the global financial environment—personal remittances to sub-Saharan Africa continue to

increase (Lubambu, 2014; Ratha, 2005). For example, the average amount of international remittances

to Ghana from 1979 to 1990 was approximately US$2.8 million (World Bank Indicators, 2017). Two

decades later, remittances to Ghana increased to about US$135 million in 2010 and US$2.1 billion in

2014. Empirical evidence on the impact of remittances in countries such as Mexico and Haiti shows

that remittances tend to depress labor supply of household members left behind, with differential

consequences for male and female labor supply (see Amuedo-Dorantes & Pozo, 2006; Jadotte, 2009).

Aside the evidence on Egypt from a study carried out by Binzel and Assaad (2011), only limited

analyses have been carried out on how male and female labor supply responds to remittances in

sub-Saharan Africa are available. It is important to note that lower labor force participation can impact

the overall economic growth of the country.

Many studies that use household surveys have shown that only about half of all international mi-

grants remit (De la Briere, Sadoulet, De Janvry, & Lambert, 2002; Gubert, 2002), whereas other

studies show that many households receive remittances without having any migrant household mem-

ber abroad (Adams & Page, 2005; Amuedo-Dorantes & Pozo, 2010). While these studies argue that

households having no international migrants can receive remittances from relatives and friends, it

is obvious that in an environment of high internal migration, as in many African countries, consid-

ering the impact of international migration and remittances alone may be incomplete. Therefore, in

this study, we examine the impact of total remittances on households. For Ghana, Teye et al. (2019),

drawing on a panel of households without any migrant household member in 2015 and following

these households over 3 years, find that the migration status of 49% of the households had changed.

Precisely, 37.2% of the households that did not have a migrant reported having internal migrants, and

2% of the households reported having international migrants by 2018. About 6.8% of the households

reported having a returned internal migrant and 0.7% had returned international migrants within the

3-year period. This buttresses our point that any analyses of the impact of remittances on household

left behind in sub-Saharan Africa and particularly Ghana should be holistic, considering the impact of

total migration and remittances.

We draw on the cross-sectional data from the Ghana Living Standards Survey (GLSS, 2012/2013)

to explore the impact of remittances on the labor participation behavior of household members left be-

hind. In this survey, 1,200 neighborhoods or clusters were selected as primary sampling units (PSUs),

covering 16,772 households containing 72,372 individuals. We address the endogeneity of remittance

or living in a remittance-receiving household using instrumental variable (IV) estimation. We in-

strument being in a remittance-receiving household with information on the degree of mobile phone

ownership among households within the neighborhood of the individual. This instrument captures the

extent of remittance-related networks in the community, which increases the opportunity to receive

mobile money even if the household does not own a mobile phone or does not have a mobile money

account on its phone. Migration scholars argue that advances made in the information and communi-

cation technology have resulted in an increased flow of people, goods, money, and ideas (see Schiller,

JEL CLASSIFICATION

D9; D10; F22; F24