The Financial Determinants of Private Investment in Ghana (1970 – 2010)

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2013-04-12
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This study examines the financial determinants of private investment in Ghana using annual time series data from 1970 to 2010. The model specified was based on the flexible accelerator model following works by Blejer and Khan (1984) and Chhibber and Van Wijnbergen (1988). The estimation technique was based on the Autoregressive Distributed Lag (ARDL) model and the application of the Bounds Testing Procedure to test for the existence of cointegration among the variables. Subsequently, the long run and short run dynamic coefficients were estimated. On the basis of the long run estimates, the results suggested that the real interest rate, credit to the private sector, real exchange rate, inflation rate and real GDP growth rate significantly affected private investment in the long run. The findings further suggested that the real exchange rate, the inflation rate and the real GDP growth rate also significantly determines private investment in the short run. The broad money supply to GDP ratio was however found to have no significant impact on private investment in both the short run and long run. The results suggested the need for intensified supply side policies for continued and sustainable growth rates and macroeconomic stabilization policies that would be aimed at boosting private investment in Ghana. Also recommended are policies that would increase competition among financial institutions and increasing awareness of various lending rates, vis a vis intensifying policies that would eliminate the financing constraints faced by private investors.
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A thesis submitted to the Department of Economics, Kwame Nkrumah University of Science & Technology, Kumasi in partial fulfilment of the requirements for the award of Master of Philosophy Degree in Economics.
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