Public Debt, Public Investment and Economic Growth in Ghana (1980-2017)
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Date
2019-05
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KNUST
Abstract
Research shows that numerous studies have analyzed the impact of public debt on economic growth. However, existing empirical evidence provides mixed and inconsistent predictions about the effect of public debt on economic growth. This study however explores the critical turning point at which the excessive government debt levels have a positive or negative impact on economic growth in Ghana. It also assessed the trend of public debt in Ghana from 1980-2017, as well as the relationship between the public investment and public debt in Ghana. The research design adopted was the quantitative method. This study utilises models that are based on Pattillo, Ricci, and Poirson (2004) Growth and Debt models due to the existence of subcomponents working unitedly. The research heavily utilized secondary data gathered from the World Development Indicators (WDI) on Ghana from 1980 to 2017. Augmented Dickey-Fuller (ADF) test, Autoregressive Distributed Lag (ARDL), time series graph and pairwise correlations were used in presentation of results. The findings show that investment continues to significantly contribute to the increase of output growth. An increase in domestic investment in the short run also increases economic growth. The study shows that there is a negative effect of debt-to-GDP on growth which means that domestic borrowing from foreign capital was used, partially, to finance government expenditure and public investment, thus contributing to the increase in public spending, increases budget deficit and leading to higher public debt in order to finance these deficits. It was therefore recommended that Ghana should employ prudent financial and economic policies that will enhance efficient financial management, promote trade, Control the depreciation of exchange rate and control Inflationary pressure. This will go a long way to promote and sustain the level of Ghana’s economic growth rate in the coming years.
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A Thesis Submitted to the Institute of Distant Learning, Kwame Nkrumah University of Science and Technology in Partial Fulfilment of the Requirement for the Degree of Master of Science in Economics