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Revisiting The Finance-Growth Nexus In Ghana: Evidence From Threshold Modelling

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  • Kwadwo Boateng Prempeh

    (Sunyani Technical University, Department of Accountancy, Faculty of Business and Management Studies, Ghana)

  • Joseph Magnus Frimpong

    (KNUST School of Business, Kwame Nkrumah University of Science and Technology, Kumas)

  • Newman Amaning

    (Sunyani Technical University, Department of Accountancy, Faculty of Business and Management Studies, Ghana)

Abstract

This article examines the non-linearities in Ghana's finance-growth nexus from 1960 to 2019. A non-linear relationship between finance and growth was established using Hansen's sample-splitting technique. This suggests that finance contributes to growth only up to a certain level. Beyond that, any further financial development is likely to be detrimental to economic growth. Additionally, the study discovered that the threshold value is conditional on the proxy of finance employed. As a result, it is critical for Ghana to establish its own distinct financial development threshold and work within the optimal level for economic growth promotion and sustainability. This study adds to the body of knowledge by establishing a financial development threshold, which provides policymakers in Ghana with a clear direction for pursuing economic growth and financial development.

Suggested Citation

  • Kwadwo Boateng Prempeh & Joseph Magnus Frimpong & Newman Amaning, 2023. "Revisiting The Finance-Growth Nexus In Ghana: Evidence From Threshold Modelling," Acta Universitatis Bohemiae Meridionalis, University of South Bohemia in Ceske Budejovice, Faculty of Economics, vol. 26(1), pages 50-70.
    • Handle: RePEc:boh:actaub:v:26:y:2023:i:1:p:50-70
    DOI: 10.32725/acta.2023.004
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    References listed on IDEAS

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    1. Robert J. Barro, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(2), pages 407-443.
    2. Peprah, James Atta & Ofori, Isaac Kwesi & Asomani, Abel Nyarko, 2019. "Financial development, remittances and economic growth: A threshold analysis," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 7(1).
    3. Masten, Arjana Brezigar & Coricelli, Fabrizio & Masten, Igor, 2008. "Non-linear growth effects of financial development: Does financial integration matter?," Journal of International Money and Finance, Elsevier, vol. 27(2), pages 295-313, March.
    4. Wahyoe Soedarmono & Iftekhar Hasan & Nuruzzaman Arsyad, 2017. "Non-linearity in the finance-growth nexus: Evidence from Indonesia," International Economics, CEPII research center, issue 150, pages 19-35.
    5. Chien-Chiang Lee & Swee Yoong Wong, 2005. "Inflationary Threshold Effects In The Relationship Between Financial Development And Economic Growth: Evidence From Taiwan And Japan," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 30(1), pages 49-69, June.
    6. Beck, Thorsten & Degryse, Hans & Kneer, Christiane, 2014. "Is more finance better? Disentangling intermediation and size effects of financial systems," Journal of Financial Stability, Elsevier, vol. 10(C), pages 50-64.
    7. Michael Graff & Alexander Karmann, 2006. "What Determines the Finance-growth Nexus? Empirical Evidence for Threshold Models," Journal of Economics, Springer, vol. 87(2), pages 127-157, March.
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    Cited by:

    1. Kwadwo Boateng Prempeh & Christian Kyeremeh & Samuel Asuamah Yeboah & Felix Kwabena Danso, 2024. "Asymmetric impact of financial development on renewable energy consumption in Ghana," SN Business & Economics, Springer, vol. 4(9), pages 1-23, September.

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