Financial Liberalization and Investment in Ghana: A Test of the McKinnon's Complementarity Hypothesis

Charles Adjasi

Studies in Economics and Econometrics, 2007, vol. 31, issue 3, 97-117

Abstract: This paper tests the McKinnon complementarity hypothesis between money and investment in Ghana in a Vector Error Correction framework. The findings reveal that investment has a positive relationship with money demand, whilst domestic credit positively influences investment, suggesting complementarity between money and investment. However interest rate does not significantly influence money demand. In the short-run, though the interest rate has a positive relationship with investment it negatively influences money demand contrary to the McKinnon postulations. Hence the relationship between money and investment could not be attributed to a savings effect from an increase in money balances and interest rate liberalization.

Date: 2007
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DOI: 10.1080/10800379.2007.12106438

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