Impact of inflation on economic growth of Ghana (1980-2016).
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Date
2018-05
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KNUST
Abstract
Inflation affects the economy of every nation and a mild form of inflation is good for the economy but a high rate of inflation is detrimental for the economy as it can lead an economy into hyperinflation. This study therefore sought to examine the impact of inflation on economic growth in Ghana. Annual time series data on economic growth and inflation, as well as other macroeconomic variables such as capital government expenditure, financial development, trade openness and governance indicator, spanning from 1980 to 2016 was employed for the analysis. The study used VECM to estimate the specified model. Stationarity test was used to ensure that all the variables were integrated of order one. The study adopted Johansen Co-integration test for the long run equilibrium relationship among the variables. The findings indicated that the estimates for the trace statistics and maximum eigenvalue for none is greater the critical values at 5%. It means that there is long run equilibrium relationship among the variables. The study adopted the pairwise granger causality to determine the direction of causality between inflation and economic growth; the findings indicated that there exists a unilateral positive causal relationship running from economic growth to inflation. Inflation and government expenditure were found to have a negative impact on economic growth whereas capital, financial development and political stability had a positive impact on economy growth. The study recommends that policy makers should increase the level of output in the economy by improving on productivity. Also monetary authorities should keep the monetary supply in check. The negative government expenditure on growth implies government spending is not growth targeted. Government should therefore regulate its current expenditure such as welfare payment, education and so on into capital expenditure.
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A Thesis Submitted In Partial Fulfillment Of The Requirments For The Degree Of Master Of Science In Economics.