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

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  • Peter Quartey
  • Frank Prah

    () (University of Ghana)

Abstract

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.

Suggested Citation

  • Peter Quartey & Frank Prah, 2008. "Financial Development and Economic Growth in Ghana: Is There a Causal Link?," The African Finance Journal, Africagrowth Institute, vol. 10(1), pages 28-54.
  • Handle: RePEc:afj:journl:v:10:y:2008:i:1:p:28-54
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    1. repec:eee:ecanpo:v:55:y:2017:i:c:p:106-123 is not listed on IDEAS
    2. Vassiki Sanogo & Richard K. Moussa, 2017. "Financial Reforms, Financial Development, and Economic Growth in the Ivory Coast," Economies, MDPI, Open Access Journal, vol. 5(1), pages 1-23, February.
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    4. repec:bpj:glecon:v:17:y:2017:i:1:p:19:n:1 is not listed on IDEAS
    5. Menyah, Kojo & Nazlioglu, Saban & Wolde-Rufael, Yemane, 2014. "Financial development, trade openness and economic growth in African countries: New insights from a panel causality approach," Economic Modelling, Elsevier, vol. 37(C), pages 386-394.
    6. Phouphet KYOPHILAVONG & Gazi Salah Uddin & Muhammad Shahbaz, 2014. "The Nexus Between Financial Development and Economic Growth in Laos," Working Papers 2014-447, Department of Research, Ipag Business School.
    7. Michael ADUSEI, 2013. "Exploring the Moderating Effect of Entrepreneurial Activity on the Finance-Growth Nexus in Africa?," Asian Journal of Empirical Research, Asian Economic and Social Society, vol. 3(8), pages 990-1004, August.
    8. Michael Adusei, 2013. "Finance-Growth Nexus in Africa: A Panel Generalized Method of Moments (GMM) Analysis," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 3(10), pages 1314-1324, October.
    9. Wolde-Rufael, Yemane, 2009. "Re-examining the financial development and economic growth nexus in Kenya," Economic Modelling, Elsevier, vol. 26(6), pages 1140-1146, November.

    More about this item

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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