Foreign aid and economic growth in Ghana (1970-2005)

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JULY, 2008
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This study examines the long and short-run relationships between foreign aid and economic growth as well as some selected macroeconomic variables as inflation and money supply in Ghana for the period 1970 to 2005 by means of time series analysis. This study employs the ARDL cointegration technique to examine the possible long and short-run effects among the investigated series. Also, a macroeconometric method is used to estimate the fungibility of aid to Ghana. The results suggest that, the impact of foreign aid on economic growth in Ghana is significantly negative, which is attributable mainly to the fungibility of aid. Among numerous policy recommendations, the study suggested policies which aimed at properly formulating and implementing good monetary and fiscal policies, as aid works effectively in good macroeconomic environment. Also, it is recommended that foreign aid should help reassign resources away from activities that produce normal goods towards activities that produce public goods, which benefit more people. Furthermore, there is a need to properly monitor aid-utilizing projects to avoid the misutilization and the mismanagement of the foreign capital resources.
A thesis submitted to the Department of Economics, in partial fulfilment of the requirements for the award of Master of Arts degree in Economics,