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What Really Drives Financial Sector Development in Ghana?

In: Financial Sector Development in Ghana

Author

Listed:
  • Isaac Kwesi Ofori

    (University of Insubria)

  • Camara Kwasi Obeng

    (University of Cape Coast)

Abstract

The chapter addresses two voids in the financial development scholarship on Ghana. First is the preferential selection of covariates deemed influential for financial development, and second, the use of traditional methods that lack regularisation powers for predicting financial development. To fill these gaps, we employ machine learning techniques to achieve two objectives—first, for identifying variables key for driving financial development in Ghana, and second, for presenting a model best for predicting financial development. To this end, we run three machine learning regularisation models namely, the Standard lasso, the Adaptive lasso and the minimum Schwarz Bayesian Information Criterion lasso, based on a dataset containing 81 potential predictors of financial development. We find that, for both regularisation and prediction objectives, the Adaptive lasso is the best. The evidence suggests that covariates such as economic globalisation, internet access and institutional quality matter for Ghana’s financial sector development. Policy recommendations are provided in the end.

Suggested Citation

  • Isaac Kwesi Ofori & Camara Kwasi Obeng, 2023. "What Really Drives Financial Sector Development in Ghana?," Palgrave Macmillan Studies in Banking and Financial Institutions, in: James Atta Peprah & Evelyn Derera & Harold Ngalawa & Thankom Arun (ed.), Financial Sector Development in Ghana, chapter 0, pages 13-53, Palgrave Macmillan.
    • Handle: RePEc:pal:pmschp:978-3-031-09345-6_2
    DOI: 10.1007/978-3-031-09345-6_2
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