Financial Sector Development and Economic Growth: The Case of Ghana (1980-2014)

Abstract

This paper examined the relationship between Financial Sector Development and Economic Growth in Ghana using an annual time series data from 1980-2014. The paper investigated empirically the impact of financial sector development on economic growth in Ghana using the Granger Causality Test, the Johansen Cointegration and the Error Correction Modeling (ECM) techniques. The intent of the framework used was to find out whether there exists a long-run relationship between growth and finance. The paper concluded that there exist a positive long run relationship between economic growth and financial sector development with financial sector developments Granger causing economic growth in Ghana. An enabling environment and financial sector interventions such as low interest rate that will enhance transfer of credit to the private sector must be pursued to enhance the economic development of Ghana.

Keywords: Financial Sector Development, Economic Growth, Financial System, Granger-Causality, Cointegration, Error Correction Modeling (ECM)