Economic Stability and Economic Growth in Ghana

Abstract

The aim of the study was to examine the relationship existing between economic stability and economic growth (real GDP growth) in Ghana. The intuition was that though it has been acknowledged that economic stability and economic growth have bear some connection, but the direction of causality is inconclusive or ambiguous. The study employed the autoregressive distributed lag (ARDL) model to co-integration technique with a help of a secondary data ranges between 1980 and 2016, sourced from World Bank (World Development Indicators). It was revealed from the stationarity tests that all the variables were stationary of order 1. The diagram showed that the trends of inflation had been non-linear however, those of exchange rates and interest rates were partly linear. The study revealed that inflation, Interest and exchange rates affect economic growth both in the short run and the long run but, interest rates influence growth at 10 percent in the short run. The idea is that any instability in an economy negatively affects the growth patterns of the country. Apart from inflation and exchange rates, the study revealed that government expenditure, and trade openness, affect the economic growth of Ghana in the long run. Additionally, it was seen that direction of causality between inflation and growth was bi-directional while that of exchange rates and interest rates the direction of causality was only from stability to economic growth. The study therefore recommends that central bank do well to curtail rates of interest and inflation rates since increases in such variables reduce economic growth.