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Corruption, EU Aid Inflows and Economic Growth in Ghana: Cointegration and Causality Analysis

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  • Joseph Forson

    (National Institute of Development Administration, Thailand)

Abstract

This paper uses the Johansen cointegration technique to examine the causal relationship between aid inflows and economic growth for Ghana during the period 1970-2013. To better reflect causality, corruption (governance) and trade are included as control variables. In order to test for causality in the face of cointegration among variables, a vector error correction model (VECM) is used in place of vector autoregressive (VAR) model. This is complemented with Toda and Yamamoto’s test to point to causal direction. Appropriate stability test to account for structural breaks in the series is undertaken. Our estimation results suggest that GDP growth has one cointegrating vector relationship with governance, EU aid inflows and trade in both short and long runs. There is a long run unidirectional causal relationship between EU Aid inflows and GDP growth, but a short run unidirectional causality from trade to GDP. Governance was ineffective to power growth. The error correction terms are the source of causation in the long and short runs in both directions. The results indeed confirm popular conjecture that corruption in Ghana stifles development. Therefore government’s decision to launch a national anti-corruption plan in 2011 though long overdue, but is justifiable. However, such an attempt will only be effective if and only if a conscious effort is made by all stakeholders to work in hand in deepening good governance (reducing corruption) as a trajectory for promoting economic growth and to serve as inducement for a continue aid inflows from multilateral donors to sustain efforts at achieving the millennium development goals in Ghana.

Suggested Citation

  • Joseph Forson, 2015. "Corruption, EU Aid Inflows and Economic Growth in Ghana: Cointegration and Causality Analysis," Managing Intellectual Capital and Innovation for Sustainable and Inclusive Society: Managing Intellectual Capital and Innovation; Proceedings of the MakeLearn and TIIM Joint International Conference 2,, ToKnowPress.
    • Handle: RePEc:tkp:mklp15:127
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    Cited by:

    1. Forson, Joseph Ato, 2017. "Innovation Financing and Public Policy Dilemmas in the Economic Community of West African States (ECOWAS)," MPRA Paper 102432, University Library of Munich, Germany, revised 20 Aug 2019.
    2. Forson, Joseph Ato & Braimah, Awaisu Imurana & Awoonor, Akorkor Kehinde, 2016. "African Perceptions of Donor Agencies: Emerging developments in Sino-African relations," MPRA Paper 102171, University Library of Munich, Germany, revised 18 Jan 2019.
    3. Forson, Joseph Ato, 2014. "A “Recursive Framework” of Corruption and Development: Comparison between Economic and Sustainable outcomes," MPRA Paper 102211, University Library of Munich, Germany, revised 10 Nov 2016.
    4. Tomiwa Sunday Adebayo & Demet Beton Kalmaz, 2020. "Ongoing Debate Between Foreign Aid and Economic Growth in Nigeria: A Wavelet Analysis," Social Science Quarterly, Southwestern Social Science Association, vol. 101(5), pages 2032-2051, September.
    5. Forson, Joseph Ato & Baah-Ennumh, Theresa Yabaa & Buracom, Ponlapat & Chen, Guojin & Peng, Zhen, 2014. "Causes of Corruption: Evidence from Sub-Sahara Africa," MPRA Paper 102431, University Library of Munich, Germany, revised 20 Mar 2016.
    6. Forson, Joseph Ato & Opoku, Rosemary Afrakomah & Peng, Zhen, 2017. "Innovation, Institutions and Economic Growth in Sub-Sahara Africa – an IV Estimation of a Panel Threshold Model," MPRA Paper 103063, University Library of Munich, Germany, revised 15 Mar 2018.
    7. Bernard Bekuni Boawei Bingab, 2019. "The Influence of Leadership Styles on Talent Management in the Banking Sector of Ghana: A Case Study of Agricultural Development Bank (ADB)," Asian Social Science, Canadian Center of Science and Education, vol. 15(5), pages 118-118, May.
    8. Md Ismail Hossain & Md Istiak Hossain & Mollah Aminul Islam & Md Reza Sultanuzzaman, 2022. "Does Foreign Aid Have an Expected Role in the Economic Growth of Bangladesh? An Analysis in ARDL Approach," International Journal of Economics and Financial Issues, Econjournals, vol. 12(6), pages 113-126, November.
    9. Forson, Joseph Ato & Buracom, Ponlapat & Chen, Guojin & Baah-Ennumh, Theresa Yabaa, 2014. "Genuine Wealth Per Capita as a Measure of Sustainability and the Negative Impact of Corruption on Sustainable Growth in Sub-Sahara Africa," MPRA Paper 102210, University Library of Munich, Germany, revised 30 May 2016.
    10. Baah Aye Kusi & Joseph Atta Junior Darkwa & Peter Kobati Ayiakwo & Joseph Ato Forson & Michael Awuku & Moses Nanyun Nankpan, 2025. "IMF programme duration and fiscal policy: a path to debt sustainability in Africa," SN Business & Economics, Springer, vol. 5(5), pages 1-23, May.
    11. Baah-Ennumh, Theresa Yaaba & Forson, Joseph Ato, 2015. "The Impact of Artisanal Small-Scale Mining on Sustainable Livelihoods: A Case Study of Mining Communities in the Tarkwa-Nsuaem Municipality of Ghana," MPRA Paper 102491, University Library of Munich, Germany, revised 15 Sep 2016.
    12. Joseph Ato Forson & Ponlapat Buracom & Guojin Chen & Theresa Yaaba Baah-Ennumh, 2017. "Genuine Wealth Per Capita as a Measure of Sustainability and the Negative Impact of Corruption on Sustainable Growth in Sub-Sahara Africa," South African Journal of Economics, Economic Society of South Africa, vol. 85(2), pages 178-195, June.
    13. Edmore Mahembe & Nicholas Mbaya Odhiambo, 2019. "Foreign aid, poverty and economic growth in developing countries: A dynamic panel data causality analysis," Cogent Economics & Finance, Taylor & Francis Journals, vol. 7(1), pages 1626321-162, January.
    14. Tomiwa S. Adebayo & Demet B. Kalmaz & Abraham A. Awosusi, 2024. "Wavelet analysis of the foreign aid and economic growth nexus in Turkey," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 53(2), July.
    15. Bingab, Bernard B.B. & Forson, Joseph Ato & Mmbali, Oscar S. & Baah-Ennumh, Theresa Yabaa, 2015. "The evolution of university governance in Ghana: implications for education policy and practice," MPRA Paper 70940, University Library of Munich, Germany, revised 01 Feb 2016.
    16. Forson, Joseph Ato & Baah-Ennumh, Theresa Yaaba & Mensah, Sampson Obed, 2014. "Women’s Contribution to Local Economic Development: A Study of Women in Cassava Production and Processing in Central Tongu District of Ghana," MPRA Paper 102430, University Library of Munich, Germany, revised 08 Mar 2016.

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    Keywords

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    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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