Financial intermediaries and economic growth in Ghana: an empirical investigation

Sheilla Nyasha and Nicholas Odhiambo

No 19613, Working Papers from University of South Africa, Department of Economics

Abstract: This paper examines the impact of bank-based financial development on economic growth inGhana during the period from 1970 to 2014 ? using the autoregressive distributed lag(ARDL) bounds testing approach. Unlike some previous studies, the current study uses fiveproxies to measure the level of bank-based financial development, including a compositeindex of bank-based financial development derived from various financial developmentindicators. The empirical results of this study show that the impact of bank-based financialdevelopment on economic growth in Ghana is sensitive to the proxy used to measure bankbasedfinancial development. The results also tend to vary over time. Overall, our resultsshow that when the ratio of domestic credit extension to the private sector by banks to GDP,and the composite index are used as proxies, bank-based financial development has apositive impact on economic growth in Ghana. However, when the ratio of deposit moneybanks' assets to GDP is used as a proxy, bank-based financial development has a negativeimpact on economic growth. These results apply, irrespective of whether the analysis is donein the short run or in the long run. Other results show that when the ratio of the claims ofdeposit money banks on the private sector to broad money is used as a proxy for bank-basedfinancial development, bank-based financial development is found to have a negative impacton economic growth in the short run, but a positive impact in the long run. However, whenthe ratio of quasi liquid liabilities to GDP is used, the relationship tends to be positive in theshort run, but negative in the long run.

Keywords: Ghana; Bank-Based Financial Development; Economic Growth (search for similar items in EconPapers)
Date: 2015-10
New Economics Papers: this item is included in nep-mac and nep-pay
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