The impact of domestic savings on economic growth: an empirical investigation in Ghana

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There has been much jubilation and hope after independence on 6th March 1957 that Ghana will steer the African continent towards fast economic growth and development. Though Ghana experienced relatively high growth soon after its independence, it had already shown negative per capita growth in 1965. In 2011, the World Bank projected Ghana to be the fastest growing economy in Sub-Saharan Africa (SSA) as Ghana witnessed a 14% economic growth in that year. This growth can only be realized through accumulation of human and fiscal capital. Domestic savings are crucial in financing high capital formation which leads to increased productivity, sustained growth and development. Unfortunately, Ghana has not witnessed gross domestic x savings above 20% of GDP. This study examined the mechanisms through which savings affect economic growth in Ghana. The study used the neoclassical production function gross domestic savings and other macroeconomic determinants are the main exogenous variables in the second model. The Thomas Tobin’s investment function is used to link gross domestic savings and investment in Ghana. The study used the Autoregressive Distributed Lag model (ARDL) to examine the short run and long run relationships between the independent variables and the dependent variables. The Dickey-Fuller Unit Root was used to check the stationarity of the variables. The study concluded that gross domestic savings affect economic growth through gross investment only in the short run but this channel does not exist in the long run.
A thesis submitted to the department of finance, school of business, college of humanities and social sciences, knust in partial fulfillment of the requirements for the award of degree in masters in business administration (finance option)