Schumpeter 1 cited in levine 2argued that when the financial system of a country. In consequence of these features and of the economic factors underlying them financial sector development has been slight in ghana, arguably contributing to. This paper aims to study the relationship between fdi and economic growth in ghana for the period 19802010 using time series data. Economists and other social scientists jealously guard their right to define concepts as they see fit. Ghanas economic performance over the medium term will, to a large extent, depend on the success of the economic stabilization program. Gold and cocoa exports, and individual remittances, are major sources of foreign exchange. Financial development and economic growth in a post financial. The aim of this paper is to investigate the longrun growth effects of financial development in ghana.
Macroeconomic context the republic of ghana is west africas second largest economy and has a population of about 25. To attain economic development, a country needs more investment and production. Ghana economic outlook african development bank building. Expansion of ghanas nascent oil industry has boosted economic growth, but the fall in oil prices since 2015 reduced by half ghanas oil revenue. Financial development and economic growth in a post. This study, therefore, applied ardl approach and granger causality test to investigating the relationship and the causal direction between financial. Jun 27, 2003 policymakers and economists generally agree that financial developmentthat is, wellfunctioning financial institutions and markets, such as commercial and investment banks, and bond and stock exchangescontribute to economic growth. Ghanas real gross domestic product gdp expanded in 2018, albeit at a slower rate than in 2017. Evidence from our data suggests that financial development undermines economic growth in ghana. This study seeks to contribute to the existing studies by examining the case of nigeria using the.
High growth momentum since 2017 has consistently placed ghana among africas 10 fastestgrowing economies. An examination of causation and efficiency a thesis submitted for the degree of doctor of philosophy by roseline oluitan department of economics and finance, brunel university, west london, uk. Theory and a survey of evidence article pdf available in journal for studies in economics and econometrics 351. Ghana economic growth and development ghana is officially known as the republic of ghana, is one of the most important countries in west africa. Economic growth and development economic growth rate is the rate of change in real income or real output. Stock market and economic growth in ghana, kenya and nigeria. The country is an active member of regional integration arrangements. In estimating the impact of ict on economic growth, we use a wide range of ict indicators, including. Financial development and economic growth in ghana. But when it comes to moderating business cycle fluctuations, banks and markets differ considerably in their effects. This study, therefore, applied ardl approach and granger causality test to investigating the relationship and the causal direction between financial development and economic growth in ghana during. This study note covers aspects of economic growth and development in ghana ghanas economy is the second biggest in west africa and it is booming helped by strong exports of cocoa, gold and oil.
Although the financegrowth relationship has been looked at in many african countries such as ghana, the outcomes have been mixed while the causal direction between the two variables has particularly not been examined. The impact of financial development on economic growth in. Ifuero osad osamwonyi, department of banking and finance, university of benin, benin, edo state, nigeria. Factors affecting growth in ghanas services economy. In this reverse causality view, financial development may be a mere leading indicator of economic growth rather than a cause. Ghana gdp annual growth rate data, historical chart, and calendar of. Although the relationship between financial development and economic growth has received widespread attention in the modern history of economics, the conclusions have been far from conclusive. Second, because financial markets are forwardlooking, financial development in 1960 may be the consequence of anticipated economic growth of the next few decades. Economic development in ghana is the key factor for its upgrading to a middleincome country. Financial development and economic growth in africa.
Introduction the financegrowth nexus is not foreign to the literature in economics. Impact of macroeconomic factors on economic growth in ghana. This study seeks to find out whether financial development in. Information about the openaccess article financial development and economic growth in ghana. We find that the growth effect of financial development is sensitive to the choice of proxy. Role of financial system in economic development of a country. Gsgda ghana shared growth development agenda ghg green house gas gcf gross capital formation. Understanding ghanas growth success story and job creation. Economic and social development before 1957 1874 gold mine in wassa and asante. The importance of financial sector development for growth and. Policymakers and economists generally agree that financial developmentthat is, wellfunctioning financial institutions and markets, such as commercial and investment banks, and bond and stock exchangescontribute to economic growth. The 3 rd edition of the ghana economic update, which focuses on agriculture as the engine of growth and jobs creation, notes that the service sector bounced back, and the fiscal consolidation is paying off.
While past studies for africa have used banking related measures, we focus on capital account measures and the depth of stock markets. Introduction an important statistic for evaluating economic performance of any economy is its annual rate of real gdp growth. Pdf financial development and economic growth in ghana. Ghana economy, politics and gdp growth summary the. Improvements in the macroeconomic environment were accompanied by expansion in domestic demand due to increased private consumption. In addition, usaid is working with the government of ghana to strengthen management of the oil and gas sector. Financial development and economic growth in africa abstract we revisit in this paper the debate between financial development and economic growth in africa. Usaid economic growth programs in ghana enhance the competitiveness of agricultural firms in domestic, regional and international markets. If economic growth greater production of goods and. Both the credit to the private sector as ratios to gdp and total domestic credit are conducive for growth, while broad money stock to gdp ratio is not. Enhancing financial inclusion africa region english abstract. The inflation rate is also down to close of 10 percent.
Abstract foreign direct investment fdi has been a vital source of economic growth for ghana, bringing in capital investment, technology and management knowledge needed for economic growth. Balancing inclusive growth with financial stability 2 2 structure and role of the financial sector in the ghanaian economy 2. Pdf financial development and economic growth in a post. The slowdown will also dent nonoil growth and investment flows, and the government will need external assistance to avoid a balanceofpayments crisis. Efficient financial systems influence the rate of savings, leading to improved investment decisions and eventually to higher longrun growth rates schumpeter 1912. In models 1a2a, all the proxy measures for financial development have positive and statistically significant coefficients. The report includes countryspecific threeyear forecasts for major macroeconomic indicators, including commodity and financial markets. Request pdf financial development and economic growth in ghana. The study investigates empirically the impact of financial sector development on economic growth in ghana using the granger. Nonoil growth is expected to accelerate to 6% as the governments new policies in the agriculture sector and the promotion of agribusiness begin to take effect. Based on the performed growth regressions, we predict ghanas future growth potential for di erent scenarios. Impact of macroeconomic factors on economic growth in. The positive effect of financial development on growth has been extensively documented rajan and zingale 1998. Introduction the finance growth nexus is not foreign to the literature in economics.
More debatable, however, have been issues about how financial development promotes growth. The paper, therefore, cautions against financial liberalization in ghana. The following are the roles of financial system in the economic development of a country. This paper investigated the longrun effect of financial sector development on growth in ghana. Ghana, financial development, economic growth, credit, size of. Macroeconomic performance and outlook ghanas economy continued to expand in 2019, with real gdp growth estimated at 7. The importance of financial sector development for growth.
The economy will contract in 2020 as the oil sector is hit by the global economic fallout from the coronavirus. Due to the conflicting result on the nexus between financial sector development and growth, the research seeks to employ different measures of financial deepening to estimate the relationship between financial sector development and economic growth. Nov, 2018 ghana economic growth and development ghana is officially known as the republic of ghana, is one of the most important countries in west africa. Keywords financial development, economic growth, ardl, granger causality, ghana 1. These issues would have an impact on choosing the design for. Ghana global economic prospects examines trends for the world economy and how they affect developing countries. Thus, economic development can spur the development of financial markets. Economic development in ghana can help fight extreme poverty. Ghanas 2018 economic outlook positive but challenges remain.
Financial sector reforms and bank performance in ghana. Impact of foreign direct investment on economic growth. Nonoil growth is expected to accelerate to 6% as the governments new policies in the agriculture sector. The results of our estimation of the longrun effects of financial development on economic growth in ghana are presented in table 5. Do remittances promote financial development in africa. Pdf although the financegrowth relationship has been looked at in many african countries such as ghana, the outcomes have been mixed. Ghana gdp annual growth rate 20002019 data 20202022. The result showed that ratio of private credit to gdp, ratio of total domestic credit to gdp, ratio of currency to gdp, ratio of currency to broad. Financial development, economic growth, ardl, granger causality, ghana 1. This study note covers aspects of economic growth and development in ghana ghana s economy is the second biggest in west africa and it is booming helped by strong exports of cocoa, gold and oil. Foreign direct investment, economic growth and financial. Ghana is one of africas most established democracies with a history of free elections and changes in government between the main parties.
It was the slowest expansion since the second quarter of 2018, due to a slowdown in both the services and industrial sectors. Ghana economic growth and development economics tutor2u. As a result, there are large number of studies that attempts to identify the main drivers of economic growth and the potential sources. The assumption that there is a uniquely correct or at least a uniquely appropriate definition of economic growth, openly invites a very fundamental type of criticism. Financial development, productivity, and economic growth. Production at jubilee, ghanas offshore oilfield, began in middecember 2010. The specifications in table 5 are the same as the specifications described in table 4. Both the credit to the private sector as ratios to gdp and total domestic.
The paper, therefore, cautions against financial liberalization. Further, we investigate whether financial inclusion is one of the channels through which mobile phone development influences economic growth. The result showed that the sensitivity of financial sector development to growth depends on the choice of proxy for financial sector development. Csd committee for sustainable development ecowas economic community of west african states epa environmental protection organization. Ghana is located near the golf of guinee and the atlantic ocean, and it is spread on a surface of 238,535 km.
Thus, advancement of the financial sector development, including diversification of financial instruments should be pursued to facilitate economic development in nigeria. Pdf financial sector development and economic growth. Ghanas employment growth lags behind economic growth, with an estimated employment elasticity of output of 0. The method of analysis that was used is the bound testing procedure. They found out that labour, capital investment and trade are important in explaining ghanas economic growth in the. A study on ghana quartey and prah, 2008 4 examined a causal link that bivaried between financial development and economic growth using four alternative indicators of financial development. In a baseline scenario, where investment, natural resources, government expenditures and other covariates are assumed to remain at the level of 200509, we nd that average growth rates are slightly above 4% in the upcoming two decades. Schumpeter 1 cited in levine 2argued that when the financial system of a country functions properly, it can stimulate economic growth by encouraging innova. Economic growth is a sustained increase in a countrys national income or output due to an increase in the countrys production capacity. Between 1946 1950 gold export rose from 6 million pounds to 9 million pounds. Despite the positive outlook, challenges remain, including further containing inflation and strengthening and deepening the financial sector to lower interest rates. Improvements in the macroeconomic environment were accompanied by expansion in domestic demand due to increased private. Financial structure and growth1 up to a point, banks and markets both foster economic growth. The theory modern growth theory identifies two specific channels through which the financial sector might affect longrun growth.
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