capital flows––which could lead to large adjustment costs in Ghana as the entry and exit of firms is rarely a symmetric process. In this scenario, the investment-to-GDP ratio reaches the very high level of 41 percent, 10 percentage points higher than the level reached in the accelerated growth scenario. Although private investment rises, most of the increase is due to public investment (in MDG-related sectors) which reaches average yearly growth rate of 13 percent. Maintaining this rate of growth may not be feasible and the government of Ghana may have to elicit the private sector participation in this investment plan. Assuming that the underlying sector experts’ estimates are correct and the necessary MDG-related investments are of these large magnitudes, a more balanced public and private contribution to the achievements of the MDGs may be the best solution. This solution is also more sustainable in the long term, when foreign grants are likely to be phased out.

There are several important feedback mechanisms from the efforts to attain the MDGs to labor market performance. The policy of keeping children in school and encouraging them to continue to higher education levels has two important consequences. Initially, this leads to a slowing of growth of the supply of unskilled workers while in the later periods the graduates enter the labor force at higher skill levels. This can be seen in the steadily falling growth rates of unskilled labor supply across the various simulations shown in Table 8 and the accelerating growth of the supply of skilled and tertiary-skilled workers. In turn, changes in factor supply have important consequences for the wage dynamics. In the accelerated growth and MDG achievement scenarios, wages of unskilled workers grow faster than in the baseline due to the relative scarcity of unskilled labor (compare the growth rates in the stock of unskilled labor across the three simulations). In the same scenarios, wages of skilled and tertiary-skilled workers also grow faster, but for different reasons. The large demand for secondary and particularly tertiary graduates (teachers, doctors, and engineers) outweighs the increased growth rate of supply and wage gains accelerate significantly relative to the baseline. These wage dynamics give rise to both optimism and caution. On the one hand, the acceleration of growth in unskilled wages is likely to generate additional gains in poverty reduction, since the majority of the poor earn the bulk of their income from unskilled labor. On the other hand, rising wages of skilled and tertiary-skilled public employees (due to high demand) can lure skilled workers away from the private sector and deprive it of the critical mass of skills necessary for sustained long-term growth.

**Table 8 Ghana: Factor market performance**

|||B<br>ase year<br>(20<br>04)|A<br>Baseline|v<br><br> erage 2004-2015 gro <br>Acceler<br>growth<br>ated|w<br> th rate (%)<br>MDG a<br>ement<br>chiev|
|---|---|---|---|---|---|
|r<br>Unskilled labo|(000)|4,238|3.1|2.4|2.4|
|Skilled labor|(000)|3<br>,450|3.5|3.2|3.8|
|labor<br>Tertiary-skilled|(000)|196|5.0|4.9|5.5|
|rivate capital<br>P|ndex)<br>(i|140|5.<br>6|5.<br>8|6.<br>4|
|e<br>Unskilled wag|(000 Cedis)|4,197|3.6|4.8|4.9|
|Skilled wage|(000 Cedis)|6,283|3.9|4.7|4.8|
|e<br>Tertiary wag|s)<br>(000 Cedi|21,<br>803|3.4|4.6|6.4|
|C pital rent<br>a|(index)|0.2|1.6|1.8|1.7|

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