The impact of inflation and foreign direct investment on economic growth: evidence from Ghana (1975-2013)

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The general objective of the study was to find out the impact of inflation and foreign direct investment on economic growth in the Ghanaian economy with evidence from 1975 to 2013. Specifically, the study sought to find the trends of economic growth in Ghana with focus on the pre and post economic recovery phase. Further, the study sought to find long run and short run impact of inflation and FDI on economic growth and controlling for other variables including Direct Investment, trade openness and population growth. The results of the study were based on the outcome of the ARDL econometric model. The study revealed the insignificance of investment and its contribution to economic growth in the Ghanaian economy either foreign Direct Investment (FDI) or Domestic Investment (DI). This result was associated with the possibility of investment being channeled to the wrong sectors of the economy. Nevertheless, inflation and population growth were two main factors that affected economic growth in Ghana. Inflation positively influenced it whiles growth in population negatively affected growth. These findings imply stabilizing inflation rates would not necessarily boost economic growth however, putting measures in place to ensure the stability or declining population growth would ensure economic growth. The outcome thus supports the structuralists view of inflation positively impacting on economic growth as well as the works pertaining to the demographic theory postulated by Thomas Malthus. Lastly, the study underscores the importance the economic recovery program (ERP) in the growth of the Ghanaian economy as it had a vital influence on the growth of the economy.
A thesis presented to The Department of Economics College of Humanities and Social Sciences in partial fulfillment of the requirement for the degree of Master of Science in Economics,