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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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    File URL: https://mpra.ub.uni-muenchen.de/90463/1/MPRA_paper_90463.pdf
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    References listed on IDEAS

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    1. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-1072, June.
    2. Phillips, P.C.B., 1986. "Understanding spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 33(3), pages 311-340, December.
    3. Perron, Pierre, 1989. "The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Econometrica, Econometric Society, vol. 57(6), pages 1361-1401, November.
    4. Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 2(2), pages 111-120, July.
    5. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
    6. Adepoju, Adenike Adebusola & Salau, Adekunle Sheu & Obayelu, Abiodun Elijah, 2007. "The Effects of External Debt Management on Sustainable Economic Growth and Development: Lessons from Nigeria," MPRA Paper 2147, University Library of Munich, Germany.
    7. repec:tei:journl:v:11:y:2017:i:1:p:61-69 is not listed on IDEAS
    8. Abu Siddique & E A Selvanathan & Saroja Selvanathan, 2015. "The Impact of External Debt on Economic Growth:Empirical Evidence from Highly Indebted Poor Countries," Economics Discussion / Working Papers 15-10, The University of Western Australia, Department of Economics.
    9. Eaton, Jonathan, 1993. "Sovereign Debt: A Primer," World Bank Economic Review, World Bank Group, vol. 7(2), pages 137-172, May.
    10. Schclarek, Alfredo, 2004. "Debt and Economic Growth in Developing and Industrial Countries," Working Papers 2005:34, Lund University, Department of Economics.
    11. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
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    Cited by:

    1. Asafo, Shuffield Seyram, 2019. "Exchange Rate Pass-through to Prices : Bayesian VAR Evidence for Ghana," MPRA Paper 92967, University Library of Munich, Germany.

    More about this item

    Keywords

    External debt; Economic growth; Economic Development; Johansen Co-integration; Time series Models; Ghana;

    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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