Abstract:
The study sought to examine the effects of financial development on private
investment in Ghana using data set for the period 1984 to 2018. The Vector Error
Correction Model (VECM) approach to cointegration, a granger causality test, and
an impulse response function were employed with annual data from WDI and the
International Monetary Fund (IMF) database to estimate the results of the study.
The study found that in the long run, financial development and private investment
were negatively related but positively related in the short run. It was also found that
there is a unidirectional causality between financial development and private
investment in Ghana. Finally, financial development reactions to private
investment innovations fluctuate in the short run but have a relatively stable
negative impact on private investment in the long run in Ghana. Based on the
findings, it is recommended that financial institutions and financial systems should
be regulated to impact private investment positively in the long run. Again, the
Ministry of Finance and Bank of Ghana as a matter of urgency intensify the
development of the financial sector to promote private investment in Ghana. Any
efforts or policies to develop the financial sector should include the provision of
information and allocation of capital on investment opportunities as well as
mobilization of savings and enabling exchange activities within the economy.
