Financial Development and Economic Growth: Additional Evidence from Ghana (original) (raw)
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Financial development and economic growth: Additional evidence
Journal of Development Studies, 1999
Although the finance-growth relationship has been looked at in many African countries such as Ghana, the outcomes have been mixed while the causal direction between the two variables has particularly not been examined. This study, therefore, applied ARDL approach and Granger causality test to investigating the relationship and the causal direction between financial development and economic growth in Ghana during the period 1970-2013. The study revealed that the amount of credit from domestic sources to the private sector maintained a positively significant nexus with the growth of the economy whereas the domestic deposit was not the case. Also, the results established that there is a dependence of the Ghanaian economy to the changes in domestic credit to private sector whilst there exists a uni-directional causality running from the variations in economic growth to the domestic deposit in Ghana. Consistent with the findings, it is recommended that the authorities concentrate on improving the efficiency of the financial system to allow deposits to be channelled to growth-inducing investments to bring about the long-term growth of the economy.
This study attempts an investigation of the relationship between financial development and economic growth for three West African countries: Cote d’Ivoire, Ghana and Nigeria during the period 1996 through 2009. It seeks to achieve this objective using country-level as well as pooled ordinary least squares regression analysis. Financial development is proxied by domestic credit (DCY), stock market turnover ratio (SMTR), and money supply (M2); while economic growth is measured by annual growth rate of real GDP. The results reveal that the choice of financial development proxy determines the nature and magnitude of the relationship between financial development and economic growth in the countries under study. The findings say that only domestic credit has a significant negative relationship in Cote d’Ivoire. For Ghana and Nigeria however, none of the measures of financial development selected has a significant impact on economic growth. But at the regional level, domestic credit and money supply were found to be statistically significant, having negative and positive relationships respectively. The study recommends that the financial system in these countries needs to be improved through financial deepening and liberalization. Another important policy implication is that domestic credits provided by the banking sector should be put into their appropriate uses; this will go a long way in stimulating economic growth and development.
Review of Development Finance, 2013
The aim of this paper is to investigate the long-run growth effects of financial development in Ghana. We find that the growth effect of financial development is sensitive to the choice of proxy. Both the credit to the private sector as ratios to GDP and total domestic credit are conducive for growth, while broad money stock to GDP ratio is not growth-inducing. The indexes created from principal component analysis confirmed the sensitivity of the effect to the choice of proxy. The findings here suggest that whether financial development is good or bad for growth depends on the indicator used to proxy for financial development.
Financial Development and Economic Growth in Ghana: Evidence from Ardl Model
2020
There is a long standing debate about the nature of the relationship between financial development and economic growth. Key among the arguments is whether a causal relationship exists and the direction of causality. This study thus examined data from 1960 to 2016 for the effects of financial development on economic growth in Ghana using the ARDL cointegration approach. The result for financial development is consistent with the endogenous growth theories and the supply-leading hypothesis.The paper finds thatthere is a long run relationship between economic growth and financial development as measured using the ratio of broad money to GDP;.. In the short run, the lagged difference of economic growth and household consumption had statistically significant relationships with economic growth which means that short run fluctuations in the economic growth rate in the previous year had a positive spillover for the following year even though this does not appear to be sustained in the long ...
International Journal of Management Sciences and Business Research, 2019
The study examines the impact of financial development on economic growth in Ghana in a time-series study from 1992 to 2017. The study employed time-series methodologies such as multivariate regression and regression with Newey-west standard errors. The study concludes that domestic credit to the private sector (financial development) has a direct relationship or strong positive impact on economic growth in Ghana, but trade openness has a negative impact on economic growth meanwhile unemployment rate, inflation, and regulatory quality have an insignificant impact on economic growth in Ghana in the sample period. Moreover, the study recommends that the government should strengthen its efforts in creating the enabling environment to facilitate the provision of domestic credit to the private sector by the financial sector and also create avenues for easy accessibility of credit domestically due to its strong impact on economic growth
FINANCIAL DEVELOPMENT AND ECONOMIC GROWTH: EVIDENCE FROM GHANA
The paper employs cointegration, Fully-Modified Ordinary Least Squares (FMOLS), Error Correction and the Generalized Method of Moments (GMM) techniques to investigate the relationship between economic growth and financial development using annual time series data from Ghana. Three measures of financial development are used: domestic credit as a share of GDP; domestic credit to private sector as a share of GDP and broad money supply as a share of GDP. Evidence from our data suggests that financial development undermines economic growth in Ghana. The paper, therefore, cautions against financial liberalization in Ghana.
ACCOUNTING RESEARCH International Journal of Accounting Research (IJAR), 2018
The study was undertaken with the objective of examining the causal relationship between financial sector performance and economic development visa -vis growth of Nigeria. The variables used were GDP, Human Development Index (HDI), which represents the dependent variables for the two models. For the independent variables, Credit to the Private Sector (CPS) which represents the credit activity of the financial sector; Interest Rate Spread (IRS) which represents the efficiency, competition and concentration of the financial sector; Market Turnover Ratio (TR) which represents the liquidity of the financial sector; Other variables that influence economic growth and development were introduced Inflation (INF) and Total Government Expenditure (GE). Moreover, the study period covers 1996 to 2016 and the data collected within the period was analysed using ADF Test and Granger Causality Test. The results showed that IRS causes economic growth which conforms to the supply leading hypothesis theory; but GDP causes financial sector performance through the Credit to Private Sector (CPS), which means the more the economy grows financial sector performance through its credit allocation function increases. This conforms to the demand following hypothesis theory. However, the overall financial sector performance couldn't facilitate effective economic growth vis-à-vis economic development in Nigeria. Thus, regulatory bodies of the financial sector should set or implement monetary policy program that would be favourable for the efficient operations of financial institutions.
Volume 16, Issue 1, January-March 2025 , 2025
This study examines the relationship between financial development and economic growth in seven countries of the Economic Community of West African States (ECOWAS) from 1970 to 2018. Vector autoregression and the Granger causality method were employed in this study to reveal the impact of financial development on investment, which is essential for long-term economic growth. In our study, investment, credit to the private sector, broad money, foreign direct investment, general government final expenditures, foreign trade, and savings are used as variables. The results of the analysis reveal that financial development indicators have a positive effect on investment. However, the degree of this effect differs from country to country. Credit to the private sector and broad money, which are indicators of financial development in some countries, have a low impact on investment, while in other countries, the impact is strong. Regarding Granger causality, four different results werefound across the countries:a bidirectional causality between financial development and investment, a unidirectional causal flow from investment to financial development, a unidirectional causal flow from financial development indicators to investment, and no causality between financial development and investment.
Financial Development and Economic Growth in Nigeria: A Reconsideration of Empirical Evidence
2015
This paper empirically investigated the impact of financial development on economic growth in Nigeria during the period 1986 – 2012.To achieve the purpose of this research, we estimated the real GDP as a function of the gross fixed capital formation, financial development (the ratio of private sector credits to GDP), liquidity ratio, and the interest rate. The methods used are: the Ordinary Least Squares (OLS) techniques, Augmented Dickey-Fuller unit root test, Johansen cointegration test, error correction technique, and the Granger causality test. The empirical results revealed that: all the variables used are integrated of the same order, I(1); there is evidence of the existence of a long run relationship among the variables used; the normalized cointegration coefficients revealed that financial development affects economic growth negatively in the long run. However, the short run impact of financial development on economic growth is positive. This goes to show that the finance-le...
THE IMPACT OF FINANCIAL DEVELOPMENT ON ECONOMIC GROWTH IN NIGERIA
2022
This study examines the relationship between financial development and economic growth in Nigeria, employing an Autoregressive Distributed Lag (ARDL) model to analyze data sourced from the Central Bank of Nigeria and World Bank. It aims to investigate the impact of various financial development indicators, such as domestic credit to the private sector, broad money, market capitalization, and gross fixed capital formation, on economic growth. The research utilizes the ARDL Bound test for cointegration and error correction modeling to provide accurate long-run and short-run elasticity estimates. Preliminary findings reveal a complex interplay between these financial indicators and economic growth, with both positive and negative relationships identified across different measures. Additionally, Granger causality tests are conducted to determine the direction of causality between financial development and economic growth, highlighting significant bidirectional influences. The study contributes to the existing literature by employing a robust methodological framework to capture the dynamics of financial development's role in an emerging economy like Nigeria, offering valuable insights for policymakers to enhance financial sector efficacy and overall economic prosperity.