A Time Series Analysis of Determinants of Private Investment in Ghana (1960-2010)

Abstract

In recent time, Ghana has embarked on policies that aim to rebalance the role of public and private sector in the economy and thus emphasize private sector development. This paradigm shift is to encourage private investment and ultimately make private sector the engine of growth. The study is a time series analysis of private investment in Ghana covering annual data set from 1960-2010.  The study employed the techniques of co-integration and error correction modeling, which provided mechanisms to deal with the problems of unit root faced in time series data. In all, the study provides evidence that inflation, exchange rate, public investment, GDP, trade openness, aid, credit and external debt both in a short run and long run significantly affect the level of private investment. Also applying the general to specific approach to error correction model, statistical results suggested the existence of stable long run co-integrating relationships between macroeconomic and other variables and private investment.

Key words: Ghana, Inflation, Private Investment, Exchange Rate, Aid, Credit, External Debt