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Fiscal policy, private investment and economic growth: the case of Ghana

Author

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  • Vera Ogeh Soli
  • Simon Kwadzogah Harvey
  • Edmond Hagan

Abstract

Purpose - This paper aims to examine the relationships between disaggregated government fiscal policy variables; private capital investment and economic growth in Ghana, as well as the similarities and differences in the impact of these variables on private investment (PI) and economic growth. Design/methodology/approach - Cointegration and an error‐correction models are used, with time series properties of the variables investigate using augmented Dickey‐Fuller test and cointegration of the variables tested using Engel‐Granger two step procedure. Findings - The findings indicate that changes in government recurrent expenditure, current government capital expenditure and international trade taxes are significant for growth while changes in tax on domestic goods and services, tax on international trade and tax on income and property matter for private capital investment. The major difference between the impact of fiscal policy on PI and economic growth, however, lies in the direction of impact. Practical implications - Based on the findings of this study, it is recommended that different policies be pursued in the promotion of PI and economic growth. Also, given the low correlation between PI and economic growth, it is recommended that the Ghanaian private sector be focused on and fully developed in order for it to perform its role as an engine of growth. Originality/value - Growth has been shown to be influenced by government expenditure and international trade taxes while private capital investment is influenced by taxes on domestic goods and services, international trade and on income and property. Fiscal policy authorities will find these useful.

Suggested Citation

  • Vera Ogeh Soli & Simon Kwadzogah Harvey & Edmond Hagan, 2008. "Fiscal policy, private investment and economic growth: the case of Ghana," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 25(2), pages 112-130, June.
    • Handle: RePEc:eme:sefpps:v:25:y:2008:i:2:p:112-130
    DOI: 10.1108/10867370810879438
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    Citations

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    Cited by:

    1. Fisayo Fagbemi & Olufemi Solomon Olatunde, 2019. "Domestic Investment in Africa: Why the Emerging Public Debt Spiral Matters?," The Review of Finance and Banking, Academia de Studii Economice din Bucuresti, Romania / Facultatea de Finante, Asigurari, Banci si Burse de Valori / Catedra de Finante, vol. 11(2), pages 91-101, December.
    2. Roshaiza Taha & Nanthakumar Loganathan, 2014. "Long-Run Nexus between Tax Revenue on Economic Performance: Empirical Evidence from Malaysia," International Journal of Economics and Empirical Research (IJEER), The Economics and Social Development Organization (TESDO), vol. 2(6), pages 238-245, June.
    3. Muhammad Irfan Javaid Attari & Roshaiza Taha & Muhammad Imran Farooq, 2014. "Tax Revenue, Stock Market and Economic Growth of Pakistan," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 5(5), pages 136-148, October.
    4. Afia Malik, 2013. "Private Investment And Fiscal Policy In Pakistan," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 38(1), pages 83-109, March.

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