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External Debt and Economic Growth in Ghana: A Co-integration and a Vector Error Correction Analysis

Author

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  • Matuka, Adelajda
  • Asafo, Shuffield Seyram

Abstract

This paper employed a co-integration analysis and an error correction methodology to examine the impact of external debt on economic growth in Ghana using annual time series from 1970-2017. Estimates show that our normalized long-run co-integrating growth equation coefficients do not differ from our short-run vector error correction coefficients for our variables of interest. Findings are that external debt inflows stimulate growth in Ghana both in the long-run and short-run. Secondly, our study also confirmed the crowding out effect, debt overhang effect and the non-linear effect of external debt on economic growth in Ghana. From the perspective of policy, we advocate for a judicious allocation of the debt resources such that the cost of servicing the debt will not skew resources away from investment which in a medium to long-term will be inimical to growth.

Suggested Citation

  • Matuka, Adelajda & Asafo, Shuffield Seyram, 2018. "External Debt and Economic Growth in Ghana: A Co-integration and a Vector Error Correction Analysis," MPRA Paper 90463, University Library of Munich, Germany, revised 04 Nov 2018.
    • Handle: RePEc:pra:mprapa:90463
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    References listed on IDEAS

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    Cited by:

    1. Sonia Afrin Ale & Md Shafiqul Islam & Hazera-Tun Nessa, 2023. "Does External Debt Affect Economic Growth: Evidence from South Asian Countries," International Journal of Economics and Financial Issues, Econjournals, vol. 13(1), pages 83-88, January.
    2. Minhaj ud-Din & Muhammad Azam Khan & Muhammad Tariq, 2020. "External Debt - Blessing or Curse: Empirical Evidence from Pakistan," International Journal of Economics and Financial Issues, Econjournals, vol. 10(4), pages 235-246.
    3. Asafo, Shuffield Seyram, 2019. "Exchange Rate Pass-through to Prices : Bayesian VAR Evidence for Ghana," MPRA Paper 92967, University Library of Munich, Germany.
    4. Sanele Stungwa, 2024. "Is external debt an impediment to the South African economy?," Public Sector Economics, Institute of Public Finance, vol. 48(1), pages 103-124.
    5. Klenam Kofi Sedegah & Richard Kwabi Ayisi & Wassiuw Abdul-Rahaman & William Baah-Boateng, 2024. "Investigating Institutional and Expenditure Patterns on Debt and Economic Growth in Ghana," Journal of Africa SEER Centre(ASC) 24/008, Africa SEER Centre(ASC).
    6. Krishna Hari Baral, 2023. "Interactions of Gross Domestic Product, External Debt and Government Expenditure: Evidence From International Development Association Countries [A Panel-VAR Approach]," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 15(5), pages 1-11, May.
    7. Rahab Wanjiku Kinuthia & Peter Omboto & Hilary Ndambiri, 2025. "Fiscal Sustainability in Sub-Saharan Africa: The Effects of Climate Change, Institutional Quality, Foreign Exchange Rate and Foreign Direct Investment," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 9(6), pages 1825-1842, June.

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    Keywords

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    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C82 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Macroeconomic Data; Data Access
    • H6 - Public Economics - - National Budget, Deficit, and Debt
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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