An econometric analysis of the impact of democracy on economic growth of Ghana from 1970 to 2008

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This study investigated the causal relationship between Democracy and Economic Growth in Ghana for the period 1970-2008 using an Error Correction Model (ECM). Questions were raised whether democracy causes economic growth or economic growth causes democracy. The objective of this study was to examine the causal relationships between these variables using Granger causality tests. To achieve this objective, ADF unit root tests was carried out for time series data in levels and second differences. Johansen co-integration analysis was applied to examine whether the variables are co-integrated of the same order taking into account the maximum eigenvalues and trace statistics tests. An error correction model was selected to investigate the long-run relationship between democracy and economic growth. Granger causality test was applied in order to find the direction of causality between the examined variables of the estimated model. It was observed that there was a negative relationship between democracy and economic growth in the short run but a positive relationship in the long run. The estimated coefficient of error correction term found statistically significant with a negative sign, which confirmed that there was not any problem in the long-run equilibrium between the examined variables. The results of Granger causality tests indicated that there is a unidirectional causal relationship between democracy and economic growth.
A Thesis submitted to the School of Graduate Studies, Kwame Nkrumah University of Science and Technology, Kumasi, in partial fulfilment of the requirements for the Degree of Master of Arts, April-2012