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Financial Liberalization and Investment in Ghana: A Test of the McKinnon's Complementarity Hypothesis

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  • C K D Adjasi

Abstract

This paper tests the McKinnon complementarity hypothesis between money and investment in Ghana in a Vector Error Correction framework. The findings reveal that investment has a positive relationship with money demand, whilst domestic credit positively influences investment, suggesting complementarity between money and investment. However interest rate does not significantly influence money demand. In the short-run, though the interest rate has a positive relationship with investment it negatively influences money demand contrary to the McKinnon postulations. Hence the relationship between money and investment could not be attributed to a savings effect from an increase in money balances and interest rate liberalization.

Suggested Citation

  • C K D Adjasi, 2007. "Financial Liberalization and Investment in Ghana: A Test of the McKinnon's Complementarity Hypothesis," Studies in Economics and Econometrics, Taylor & Francis Journals, vol. 31(3), pages 97-117, December.
    • Handle: RePEc:taf:rseexx:v:31:y:2007:i:3:p:97-117
    DOI: 10.1080/10800379.2007.12106438
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