Growing the Growth of the Ghanaian Economy: Is the Function of the Countrys Financial Development of Any Significance?

Abstract

This study investigates the relationship between economic growth and financial development in Ghana, the study incorporates the variables of government expenditure, population and trade openness among others. The time span of the study is from 1970 to 2012. To ensure robust results, the ARDL bounds testing approach to cointegration was applied in analyzing the dynamic relationship between the variables. The findings of the study in the long-run, established that, financial development has a strong positive impact to the Ghanaian GDP and contrary was found to be the case in the short-run. In addition to that, population was discovered to have a negative impact on the long-run growth of the country’s GDP. The aim of this study is to assess the directions of how to grow the growth of the Ghanaian economy. Surprisingly, the study discovered that despite the negative contributions of the huge government expenditure which defied the Keynesian hypothesis and the Wagner’s law of stimulating economic growth due largely to other exogenous factors not included in this study, yet, the study suggested the need for the Ghanaian policy makers to place all effort in eliminating all forms of financial repression. In addition to that, there is the need for the establishment of all measures that will help in attracting foreign direct investment in to the country. This can be achieved through sound political stability, provision of basic infrastructural facilities, better supervision and prudential regulations of the country’s financial system and the encouragement of entrepreneurial growth, innovation and creativities within the local economy. Finally corruption and embezzlement should as much as possible be tamed if realistic results of growing the growth of the Ghanaian economy is to be attained.