GOVERNMENT CAPITAL EXPENDITURE, RECURRENT EXPENDITURE AND ECONOMIC GROWTH IN GHANA

Abel Nyarko Asomani

Working Papers from African Economic Research Consortium

Abstract: This study sought to find out the relationship between government expenditure and economic growth in a further disaggregated level in Ghana. Focusing on the period 1990 to 2015, it considered the major sub-components of recurrent expenditure (thus non-interest and interest-payment) and capital expenditure and their relationship with economic growth. Using a quarterlized time series data, this work employed the Autoregressive Distributed Lag model (ARDL) to estimate the relationship among these variables of interest. Furthermore, to establish the direction of causality that lies between these government expenditures and economic growth, this study resorted to the Granger Causality test to arrive at the direction of causality among the variables. Based on the ARDL results, capital expenditure and non-interest recurrent expenditure promotes economic growth in the long-run period while interestpayments retards economic growth in the all periods. The short-run results show that capital expenditure and non-interest recurrent expenditure increases economic growth while the lagged values for capital expenditure decreases economic growth. The granger causality test indicates a unidirectional causality running from the government expenditures to economic growth, except for that of interest payment whereby causality runs from Economic growth to interest-payment expenditure. Based on the findings, these recommendations were suggested to the Ministry of Finance: increase funding for capital expenditure, increase and intensify the monitoring aspect of non-interest expenditure and capping of the levels of public borrowings within a year to decrease interest-payment burden.

Date: 2017-06-10
Note: African Economic Research Consortium
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Persistent link: https://EconPapers.repec.org/RePEc:aer:wpaper:4dda8dd9-62be-452a-baea-470b64519738

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