Journal of Emerging Trends in Economics and Management Sciences: Home

Article Title:
The Impact of Financial Sector Efficiency on Economic Growth of Ghana
by Amankwaah Eric, Agyei Kwaku Nicholas, Abina Solomon, Abina Dwaase Daniel

Abstract:
The study investigates the impact of financial sector efficiency on Ghanaian economic growth from 1970 to 2014. ARDL Cointegrating and Error-Correction Models were estimated to examine the static and dynamic long-run effects as well as the short-run dynamics of the system and the speed of adjustment to the long-run equilibrium. The study shows that financial sector efficiency (measured by the ratio of bank credit to deposit) has a positive and statistically significant effect on economic growth. Government spending is positive and statistically significant to economic growth whiles trade openness is negatively related to economic growth. The evidence presented in this study provide effective and vigorous support to the view that financial sector efficiency is critical for economic growth and the efficiency of the financial institutions is conceivably vital for the long-term growth performance of the country. Given this positive connection, the significance of financial sector efficiency ought not to be belittled and must be one of the primary techniques to accomplish practical economic growth in the long run. Finance has been acknowledged as the oil for economic growth, the study aims at providing empirical evidence on the impact of financial sector on economic growth which will serve as guide to policy makers to come up with policies vital to the improvement in the financial sector to enhance growth in the Ghanaian economy and to make priorities during the processes of financial restructuring.

Keywords: Financial Sector Efficiency; Economic Growth; Ghana; Cointegration; Bank Credit; Total Bank Deposit; Government Spending; Investment

Download full paper