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. Impact of macroeconomic factors on economic growth in. Schumpeter 1 cited in levine 2argued that when the financial system of a country. This paper investigated the longrun effect of financial sector development on growth in ghana. Schumpeter 1 cited in levine 2argued that when the financial system of a country functions properly, it can stimulate economic growth by encouraging innova. Beyond that limit, expanded bank lending or marketbased financing no longer adds to real growth. 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. Gsgda ghana shared growth development agenda ghg green house gas gcf gross capital formation. Csd committee for sustainable development ecowas economic community of west african states epa environmental protection organization.
As a result, there are large number of studies that attempts to identify the main drivers of economic growth and the potential sources. Improvements in the macroeconomic environment were accompanied by expansion in domestic demand due to increased private. Ghanas 2018 economic outlook positive but challenges remain. 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. Financial structure and growth1 up to a point, banks and markets both foster economic growth. Ghana is located near the golf of guinee and the atlantic ocean, and it is spread on a surface of 238,535 km. Pdf financial development and economic growth in a post.
It was the slowest expansion since the second quarter of 2018, due to a slowdown in both the services and industrial sectors. The inflation rate is also down to close of 10 percent. Economists and other social scientists jealously guard their right to define concepts as they see fit. More debatable, however, have been issues about how financial development promotes growth. Pdf financial sector development and economic growth.
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. They found out that labour, capital investment and trade are important in explaining ghanas economic growth in the. Macroeconomic context the republic of ghana is west africas second largest economy and has a population of about 25. Impact of macroeconomic factors on economic growth in ghana. Between 1946 1950 gold export rose from 6 million pounds to 9 million pounds. Do remittances promote financial development in africa. Understanding ghanas growth success story and job creation.
Ghana gdp annual growth rate 20002019 data 20202022. Financial development, productivity, and economic growth. If economic growth greater production of goods and. Usaid economic growth programs in ghana enhance the competitiveness of agricultural firms in domestic, regional and international markets. Based on the performed growth regressions, we predict ghanas future growth potential for di erent scenarios. These issues would have an impact on choosing the design for. Financial development and economic growth in africa abstract we revisit in this paper the debate between financial development and economic growth in africa.
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. 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. Expansion of ghanas nascent oil industry has boosted economic growth, but the fall in oil prices since 2015 reduced by half ghanas oil revenue. The report includes countryspecific threeyear forecasts for major macroeconomic indicators, including commodity and financial markets. 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. Efficient financial systems influence the rate of savings, leading to improved investment decisions and eventually to higher longrun growth rates schumpeter 1912. 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.
Economic development in ghana can help fight extreme poverty. Ghana, financial development, economic growth, credit, size of. Economic development in ghana is the key factor for its upgrading to a middleincome country. The impact of financial development on economic growth in. Enhancing financial inclusion africa region english abstract. Improvements in the macroeconomic environment were accompanied by expansion in domestic demand due to increased private consumption. Pdf financial development and economic growth in ghana. Ghana economy, politics and gdp growth summary the. The specifications in table 5 are the same as the specifications described in table 4.
The paper, therefore, cautions against financial liberalization in ghana. 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. Evidence from our data suggests that financial development undermines economic growth in ghana. The economy will contract in 2020 as the oil sector is hit by the global economic fallout from the coronavirus. Foreign direct investment, economic growth and financial. Pdf although the financegrowth relationship has been looked at in many african countries such as ghana, the outcomes have been mixed. Second, because financial markets are forwardlooking, financial development in 1960 may be the consequence of anticipated economic growth of the next few decades. But when it comes to moderating business cycle fluctuations, banks and markets differ considerably in their effects. The result showed that the sensitivity of financial sector development to growth depends on the choice of proxy for financial sector development. High growth momentum since 2017 has consistently placed ghana among africas 10 fastestgrowing economies. Theory and a survey of evidence article pdf available in journal for studies in economics and econometrics 351.
Impact of foreign direct investment on economic growth. We find that the growth effect of financial development is sensitive to the choice of proxy. This paper aims to study the relationship between fdi and economic growth in ghana for the period 19802010 using time series data. Introduction an important statistic for evaluating economic performance of any economy is its annual rate of real gdp growth. Introduction the finance growth nexus is not foreign to the literature in economics. Economic growth and development economic growth rate is the rate of change in real income or real output. 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. While past studies for africa have used banking related measures, we focus on capital account measures and the depth of stock markets. Both the credit to the private sector as ratios to gdp and total domestic. Financial development and economic growth in ghana. The country is an active member of regional integration arrangements. Ghana is one of africas most established democracies with a history of free elections and changes in government between the main parties.
Nonoil growth is expected to accelerate to 6% as the governments new policies in the agriculture sector. Ghana global economic prospects examines trends for the world economy and how they affect developing countries. Financial development and economic growth in a post financial. Request pdf financial development and economic growth in ghana. Financial development has played a leading role in many economies of less developed countries ledcs and africa especially. Financial development and economic growth in a post.
Ghana gdp annual growth rate data, historical chart, and calendar of. Ghanas employment growth lags behind economic growth, with an estimated employment elasticity of output of 0. Ghanas real gross domestic product gdp expanded in 2018, albeit at a slower rate than in 2017. Macroeconomic performance and outlook ghanas economy continued to expand in 2019, with real gdp growth estimated at 7. Role of financial system in economic development of a country. In models 1a2a, all the proxy measures for financial development have positive and statistically significant coefficients. 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. This study seeks to find out whether financial development in. Financial sector reforms and bank performance in ghana. In this reverse causality view, financial development may be a mere leading indicator of economic growth rather than a cause. Stock market and economic growth in ghana, kenya and nigeria.
In addition, usaid is working with the government of ghana to strengthen management of the oil and gas sector. Ghana economic growth and development economics tutor2u. The aim of this paper is to investigate the longrun growth effects of financial development in ghana. The theory modern growth theory identifies two specific channels through which the financial sector might affect longrun growth. This study, therefore, applied ardl approach and granger causality test to investigating the relationship and the causal direction between financial. Gold and cocoa exports, and individual remittances, are major sources of foreign exchange. The importance of financial sector development for growth.
Ghanas economy is the second biggest in west africa and strong exports of cocoa, gold and oil constitute the main pillars of. Thus, economic development can spur the development of financial markets. This study seeks to contribute to the existing studies by examining the case of nigeria using the. The method of analysis that was used is the bound testing procedure.
Despite the positive outlook, challenges remain, including further containing inflation and strengthening and deepening the financial sector to lower interest rates. Balancing inclusive growth with financial stability 2 2 structure and role of the financial sector in the ghanaian economy 2. Factors affecting growth in ghanas services economy. 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. Production at jubilee, ghanas offshore oilfield, began in middecember 2010. Ghanas economic performance over the medium term will, to a large extent, depend on the success of the economic stabilization program. Financial development, economic growth, ardl, granger causality, ghana 1. Information about the openaccess article financial development and economic growth in ghana. The importance of financial sector development for growth and. 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. Factors affecting growth in ghanas services economy jennifer baumert powell, office of industries jennifer. In consequence of these features and of the economic factors underlying them financial sector development has been slight in ghana, arguably contributing to. 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. 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.
Further, we investigate whether financial inclusion is one of the channels through which mobile phone development influences economic growth. The slowdown will also dent nonoil growth and investment flows, and the government will need external assistance to avoid a balanceofpayments crisis. Ghana economic outlook african development bank building. The paper, therefore, cautions against financial liberalization. Thus, advancement of the financial sector development, including diversification of financial instruments should be pursued to facilitate economic development in nigeria. 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. 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. Ghana economic growth and development ghana is officially known as the republic of ghana, is one of the most important countries in west africa. In estimating the impact of ict on economic growth, we use a wide range of ict indicators, including.
The results of our estimation of the longrun effects of financial development on economic growth in ghana are presented in table 5. Financial development and economic growth in africa. The study investigates empirically the impact of financial sector development on economic growth in ghana using the granger. Keywords financial development, economic growth, ardl, granger causality, ghana 1. This can happen only when there is a facility for savings. The following are the roles of financial system in the economic development of a country. 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. Economic growth is a sustained increase in a countrys national income or output due to an increase in the countrys production capacity. Introduction the financegrowth nexus is not foreign to the literature in economics. To attain economic development, a country needs more investment and production.