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Financial Development and Economic Growth in Ghana: Is There a Causal Link?

  • Peter Quartey
  • Frank Prah

    (University of Ghana)

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    This study seeks to find out whether financial development in Ghana conforms to either the Supply-leading, demand-following or Patrick’s Stages of development hypotheses. A bivariate VAR model is estimated in four scenarios, after which Granger-causality Test, Impulse Response Function and Variance Decomposition analyses were conducted for each respective scenario of the VAR. Whereas there is some evidence in support of demand-following hypothesis, when growth of broad money to GDP ratio is used as a measure of financial development, there is no significant evidence to support either the supply-leading or demand-following hypotheses when growth in domestic credit to GDP ratio, private credit to GDP ratio, and private credit to domestic credit ratio are used as proxies for financial development. Also, in all the four scenarios, there is no statistical evidence to support Patrick’s stages of development hypothesis in Ghana.

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    Article provided by Africagrowth Institute in its journal African Finance Journal.

    Volume (Year): 10 (2008)
    Issue (Month): 1 ()
    Pages: 28-54

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    Handle: RePEc:afj:journl:v:10:y:2008:i:1:p:28-54
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