Financial deepening and economic growth in ghana: (a co-integration analysis)

Ghana in 1986, as part of Structural Adjustment Program (SAP) implemented Financial Sector Adjustment Program (FINSAP), the financial sector reform programme was followed up with the Financial Sector Strategic Plan (FINSSP) in 2003. It became imperative to explore with the indices to find out whether these reforms have facilitated economic growth in Ghana. The main objective of the study was to investigate the significance of financial deepening on economic growth. The study developed an index for financial deepening following Abiad et al. (2010) and Bawumia (2010). The study adopted the Johansson Co-integration regression procedures with evidence suggesting financial deepening has a significant impact on economic growth, and also there is bi-directional causality between the official exchange rate and credit to the private sector for investment. Thse study therefore recommended policies should place emphasis on removal of any unnecessary restriction in the financial sector and deepening the reforms to promote economic growth.