EXTERNAL DEBT AND ECONOMIC GROWTH IN GHANA: A CO-INTEGRATION AND VECTOR ERROR CORRECTION ANALYSIS
Abstract
This paper employed a co-integration analysis and an error correction methodology to examine the impact of external debt on economic growth in Ghana using annual time series for the period 1970-2017. We found that external debt inflows spur growth in Ghana both in the long-run and short-run. Secondly, our study also confirmed the crowding out effect and the non-linear effect of external debt in the long run and short-run. However, Debt overhang was only confirmed in the short-run.
We advocate for a judicious allocation of the debt resources so that the cost of servicing the debt will not outweigh the benefit of the borrowed funds.
References
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[28] Schclarek, A. 2004. Debt and economic growth in developing and industrial countries. Working papers 2005: 43, Lund University, Department of Economics.
[29] Senadza, B., Fiagbe, A.K., and Quartey, P. 2017. The effect of external debt on economic growth in Sub-Saharan Africa. International Journal of Business and Economics Applied Sciences, 11(1): 61-69.
[30] Siddique, A., Selvanathan, E.A., and Saroja, S. 2015. The impact of external debt on economic growth: Empirical evidence from highly-indebted poor countries. Economics Discussion / Working Papers 15-10, The University of Western Australia, Department of Economics.
[31] Sulaiman, L.A., and Azeez, B.A. 2012. Effect of external debt on the economic growth of Nigeria. Journal of Economics and Sustainable Development, 3 (8): 71-79. ISSN 2222-1700. Available at: https://www.researchgate.net/publication/267704835_Effect_of_External_Debt_on_Economic_Growth_of_Nigeria
[32] Todaro, M.P., and Smith, S.C. 2009. Economic development. (10thedn.). United Nations Conference on Trade and Development. (UNTAD/ITCD/203/1). Essess, England: Pearson Education Ltd. ISBN: 9780321485731
[33] Were, M. 2001. The impact of external debt on economic growth and private investment in Kenya: 1970-1996. An assessment UNU/WIDER Discussion Paper, DP2001-120. Helsinki.
[34] Zupi, M. 2003. Is pooling data a reliable method of empirical argumentation relating to African Development? Paper presented at the 2nd general Conference of the European Consortium of Political Research (ECPR), Marburg, Germany. Centro studi di politica internazionale (CeSPI) and Rokilde University, 18-21 september.
*** International Debt statistics. 2019. World Bank Group. Available at: https://data.worldbank.org/products/ids
*** Ministry of Finance and Economic Planning. 2009. Annual External Financing Performace Report, MOFEP, Accra, Ghana.
*** World Bank. 2004. Ghana-Enhanced Heavily Indebted Poor Countries (HIPC) Debt Initiative (English). Washignton, DC: World Bank.
[2] .Iyoha, M.A. 1999. External debt and economic growth in Sub-Saharan African countries: An econometric study. Nairobi Kenya. AERC Research Paper 90.
[3] Adepoju, A., Salau, A.S., and Obayelu, A.E. 2007. The effect of external debt management on sustainable economic growth and development: Lessons from Nigeria, MPRA paper No.2147.
[4] Anyanwu, J.C. 1994. An analysis of the external debt burden of Sub-Saharan Africa. In Onah, F.E. (eds.), African debt burden and economic development selected papers for the 1994 Annual Conference of the Nigerian Economic Society, May.
[5] Asafo, S.S., Adelajda, M., and Nyendu, D. 2019. External debt and economic growth: Two-step GMM evidence for Sub-Saharan African countries. International Journal of Business, Economics and Management, 6(1): 39-48.
[6] Chowdhury, A.R. 2001. External debt and growth in developing countries: A sensitivity and causal analysis. World Institute for Development Economics, No.2001/95, 1982-1999 pp.
[7] Cunningham, R.T. 1993. The effect of debt burden on the economic growth in heavily indebted developing nations. Journal of Economic Development, 18 (1): 115-126
[8] Dickey, D.A., and Fuller, W.A. 1979. Distribution of the estimators of autoregressive time series with a unit root. Journal of the American Statistical Association, 74 (36): 427-431.
[9] Dickey, D.A., and Fuller, W.A. 1981. Likelihood ratio statistics for autoregressive time series with a unit root. Econometrica, 49: 1057-72
[10] Diego, R.C., Jonhannes, H.S., and Marcelo, T.B. 2009. External debt and economic growth.
[11] Eaton, J. 1993. Sovereign debt: A primer. The World Bank Economic Review, 7(2): 137-172.
[12] Elbadawi, I., Benno, N., and Njuguna, N. 1996. Debt overhang and economic growth in Sun-Saharan Africa. In: Iqbal, Zubair and Ravi (Editors). External finance for low income countries. International monetary fund. ISBN: 9781451957198, 257 p.
[13] Engel, E.A. 1983. Exogeneity. Econometrica, 51: 277–304.
[14] Engel, R.F., and Granger, C.J. 1987. Co-integration and error-correction: Representation, estimation and testing. Econometrica, 55(2): 987-1008.
[15] Fosu, A.K. 1996. The impact of external debt on economic growth in Sub-Saharan Africa. Journal of Economic Development, 21(1): 93-117.
[16] Frimpong, M., and Oteng-Abayie, E.F. 2006. The impact of external debt on economic growth in Ghana: A cointegration analysis. Journal of Science and Technology, 26(3): 121-130.
[17] Granger, C.W.J., and Newfold, P. 1974. Spurious regressions in econometrics. Journal of Econometrics, 2(2): 111-120.
[18] Hendry, D.F., and Krolzig, H.M. 2001. Automatic Econometric Model Selection using PcGets. London: Timberlake Consultants Press. ISBN: 0953339491 9780953339495, 232 p.
[19] Johansen, S. 1988. Statistical analysis of cointegrating vectors. Journal of Economic Dynamics and Control, 12: 231-254.
[20] Kasidi, F., and Said, A.M. 2013. Impact of external debt on economic growth: A case study of Tanzania. Advances in Management and Applied Economics, 3 (4): 59-82.
[21] Krugman, P. 1988. Financing versus forgiving a debt overhang. NBER Working Paper 2486.
[22] Mwaba, A. 2001. External debt and debt reduction measures in Uganda. Paper prepared for WIDER conference on debt relief, Helsinki 17-18 September
[23] Perron, P. 1989. The great crash, the oil price shock, and the unit root hypothesis. Econometrica, 57: 1361-1401.
[24] Phillips, P.C.B. 1986. Understanding spurious regressions in econometrics. Journal of Econometrics, 33(3): 311-340.
[25] Phillips, P.C.B., and Perron, P. 1988. Testing for unit root in time series regressions. Biometrika, 75: 335-346.
[26] Rolf, M. 2005. External debt and pro-poor growth. Open Access Publication Server of ZBW. No 23, Proceedings of the German Development Economics Conference, Kiel 2005 from Verein für Socialpolitik, Research Committee Development Economics
[27] Sachs, J. 1989. The debt overhang of developing countries. Calvo, Guillermo A. et al. (Editors), Debt, stabilization and development: Essays in memory of Carlos Diaz-Alejandro. Oxford: Basil Blackwell. ISBN: 978-0631156857, 462 p.
[28] Schclarek, A. 2004. Debt and economic growth in developing and industrial countries. Working papers 2005: 43, Lund University, Department of Economics.
[29] Senadza, B., Fiagbe, A.K., and Quartey, P. 2017. The effect of external debt on economic growth in Sub-Saharan Africa. International Journal of Business and Economics Applied Sciences, 11(1): 61-69.
[30] Siddique, A., Selvanathan, E.A., and Saroja, S. 2015. The impact of external debt on economic growth: Empirical evidence from highly-indebted poor countries. Economics Discussion / Working Papers 15-10, The University of Western Australia, Department of Economics.
[31] Sulaiman, L.A., and Azeez, B.A. 2012. Effect of external debt on the economic growth of Nigeria. Journal of Economics and Sustainable Development, 3 (8): 71-79. ISSN 2222-1700. Available at: https://www.researchgate.net/publication/267704835_Effect_of_External_Debt_on_Economic_Growth_of_Nigeria
[32] Todaro, M.P., and Smith, S.C. 2009. Economic development. (10thedn.). United Nations Conference on Trade and Development. (UNTAD/ITCD/203/1). Essess, England: Pearson Education Ltd. ISBN: 9780321485731
[33] Were, M. 2001. The impact of external debt on economic growth and private investment in Kenya: 1970-1996. An assessment UNU/WIDER Discussion Paper, DP2001-120. Helsinki.
[34] Zupi, M. 2003. Is pooling data a reliable method of empirical argumentation relating to African Development? Paper presented at the 2nd general Conference of the European Consortium of Political Research (ECPR), Marburg, Germany. Centro studi di politica internazionale (CeSPI) and Rokilde University, 18-21 september.
*** International Debt statistics. 2019. World Bank Group. Available at: https://data.worldbank.org/products/ids
*** Ministry of Finance and Economic Planning. 2009. Annual External Financing Performace Report, MOFEP, Accra, Ghana.
*** World Bank. 2004. Ghana-Enhanced Heavily Indebted Poor Countries (HIPC) Debt Initiative (English). Washignton, DC: World Bank.
Published
2019-06-30
How to Cite
ASAFO, Shuffield Seyram; MATUKA, Adelajda.
EXTERNAL DEBT AND ECONOMIC GROWTH IN GHANA: A CO-INTEGRATION AND VECTOR ERROR CORRECTION ANALYSIS.
Theoretical and Practical Research in Economic Fields, [S.l.], v. 10, n. 1, p. 45-53, june 2019.
ISSN 2068-7710.
Available at: <https://journals.aserspublishing.eu/tpref/article/view/3814>. Date accessed: 21 dec. 2024.
doi: https://doi.org/10.14505/tpref.v10.1(19).05.
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