THE EFFECT OF FINANCIAL DEVELOPMENT AND MONETARY POLICY ON ECONOMIC GROWTH IN GHANA
Date
2018-11-12
Authors
SENA, PRINCE MIKE
Journal Title
Journal ISSN
Volume Title
Publisher
University of Cape Coast
Abstract
The link between financial development and monetary policy has received
considerable attention in many African Countries such as Ghana. This,
notwithstanding, empirical evidence on the link have been mixed. The study,
therefore, applied the Autoregressive Distributed Lag (ARDL) approach to
investigating whether financial development influences monetary policy
effectiveness on economic growth in Ghana for the period 1980 to 2016. The results
revealed that monetary policy’s impacts on economic growth via financial
development is positive and statistically significant suggesting that financial
development strengthens the effects of monetary policy on economic growth in
Ghana. Further, financial development, monetary policy, foreign direct investment,
remittances, capital and labour supply exerted positive and statistically significant
impact on economic growth both in the short-run and the long-run. Signifying that
these variables are critical in enhancing sustained economic growth and
development in Ghana. However, inflation proved to be detrimental to economic
growth both in the long-run and short-run. The conduct of the Granger causality
test also revealed a unidirectional causality running from economic growth to
financial development. It is therefore recommended that Bank of Ghana should
strengthen monetary policy transmission via deliberate efforts to deepen financial
sector development and improve the competitiveness of financial markets. Bank of
Ghana should also build strong and resilient institutional frameworks to foster the
development of financial markets so as to deepen the influence of monetary policy
on market interest rates in the financial sector.
Description
Keywords
Autoregressive distributed lags , Economic growth , Financial deepening , Financial development , Monetary policy , Output