Finance‐growth nexus: New insight from Ghana

Isaac Appiah‐Otoo and Na Song

International Journal of Finance & Economics, 2022, vol. 27, issue 3, 2682-2723

Abstract: We re‐examine the links between financial development and the real economy in Ghana given the gaps in the literature, recent happenings in the financial sector, new dataset, and the more active interventions by the Bank of Ghana to inform good policy decisions. By employing the Autoregressive Distributed Lag Bounds Cointegration approach (ARDL) and the Fully Modified OLS model (FMOLS), the study documented broad money supply, domestic credit provided by the financial sector, domestic credit to the private sector, bank deposit to GDP, liquid liabilities to GDP, deposit money banks assets to GDP, deposit money bank assets to deposit money bank assets and central bank assets, non‐life insurance premium volume to GDP, stock market capitalization to GDP and the number of listed companies to have a significant negative effect on Ghana's economic growth in the long‐run. The joint effect of financial development was also found to have a significant negative effect on Ghana's economic growth from the FMOLS model. The study recommended the imperative for policymakers to increase infrastructure investment by promoting reforms to boost cooperation between civil societies, the public sector, and the private sector to address the high cost of investment to improve the macroeconomic performance of the country. The study further recommended policymakers to support the financial sector by injecting liquidity during these distress times.

Date: 2022
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