Determinants of Deposit Mobilization and Its Role in Economic Growth in Ghana
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Date
2012-02-13
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Abstract
Over the past decade, planning in Ghana for investment has been a problem especially with policy makers due to over-reliance on sources of finance other than domestically generated funds. The sure solution therefore will be the need to mobilize domestic funds and channeling those funds to capital formation through prolific investments. The literature discloses a devastating agreement that a liberalized economy encourages increased savings and promotes capital amassing and economic growth. This study examined the determinants of savings mobilization and its role in promote economic growth in Ghana. Data for the analysis cover the period between 1980 and 2010. Time series characteristics of the data were investigated by applying unit root tests to examine the stationarity of each variable. To determine the robustness of the Ordinary Least Squares (OLS) regression coefficients, a test for serial correlation and heteroskedasticity was performed. The demand for real bank deposits was then modelled using the OLS technique. Results from the study show that exchange rate, inflation rate and money supply (M2) significantly affect the mobilization of financial savings (deposit) in Ghana. Deposit interest rate however, proofed to be a weak determinant of bank deposit mobilization. This is because of the lack of confidence that people had in the banking system. Successful mobilization of domestic resources requires a stable macroeconomic environment in which inflation is under control and possible currency substitution is tamed by a stable exchange rate. The functions performed by banks, especially their use of deposits to allocate credit to the private sector for investment, promote growth to an extent. However, government borrowing and other factors constrain the economy from realizing the full growth benefits of functions performed by the banks. Financial policies by government can also augment this development process by assuring greater amount of information on credit worthiness of businesses and households in the economy.
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A Thesis submitted to the Institute of Distance Learning, Kwame
Nkrumah University of Science and Technology, Kumasi in partial fulfillment of
the requirements for the degree of
Commonwealth Executive Masters of Business Administration, September-2012