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External Debt and Economic Growth in Ghana: A Co-integration and a Vector Error Correction Analysis

Adelajda Matuka and Shuffield Asafo

MPRA Paper from University Library of Munich, Germany

Abstract: This paper employed a co-integration analysis and an error correction methodology to examine the impact of external debt on economic growth in Ghana using annual time series from 1970-2017. Estimates show that our normalized long-run co-integrating growth equation coefficients do not differ from our short-run vector error correction coefficients for our variables of interest. Findings are that external debt inflows stimulate growth in Ghana both in the long-run and short-run. Secondly, our study also confirmed the crowding out effect, debt overhang effect and the non-linear effect of external debt on economic growth in Ghana. From the perspective of policy, we advocate for a judicious allocation of the debt resources such that the cost of servicing the debt will not skew resources away from investment which in a medium to long-term will be inimical to growth.

Keywords: External debt; Economic growth; Economic Development; Johansen Co-integration; Time series Models; Ghana (search for similar items in EconPapers)
JEL-codes: C13 C82 H6 O47 (search for similar items in EconPapers)
Date: 2018-12-10, Revised 2018-11-04
New Economics Papers: this item is included in nep-gro
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