Budget deficit's significance to the economy of Ghana : a VECM approach
Kumah, Joshua Elom Mensah (2024)
Pro gradu -tutkielma
2024
School of Business and Management, Kauppatieteet
Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi-fe2024060747338
https://urn.fi/URN:NBN:fi-fe2024060747338
Tiivistelmä
The vector error-correction model (VECM) has often been used in many studies in time series data of economy, business, and finance. VECM can explain the impact between set of variables by using the impulse response function (IRF) alongside granger causality analysis (Johansen,1995). In addition, to its simplicity, it was used for forecasting the time series data. This research sought to find out the long and short run relationships of macroeconomic indicators in view of investigating Ghana's economic growth in focusing on its budget deficit.
The high rate of budget deficit in Ghana as of late has raised concerns about the country's economic future, making this study pertinent. The discussion of ways to reduce the budget deficit, including fiscal consolidation and austerity measures, is aided by this study. To achieve this, various economic variables was ascertained from 1980 to 2019 for examination. The study's findings showed that budget deficit and economic growth of Ghana are positively related. The relationship has policy implications because it shows that rising budget deficits are good for the nation's ability to grow economically. But the downside to this is that the country in the short period faces economic crisis and if not manged well could inevitably lead to an economic recession which has often been the case in Ghana. This has often resulted in higher borrowing, inflation and increased national debt (Cohen 2023).
Additionally, the analysis found that GDP and labour force participation continue to be the main drivers of economic growth in Ghana. Thus, to effectively promote economic growth in the nation, the Ghana government should collaborate with the private sector, improve accountability of state funds, and rigorously engage in social welfare activities. Additionally, there should be enforcing of budget tightening policies like cost containment and fiscal consolidation without sacrificing its top priorities.
The high rate of budget deficit in Ghana as of late has raised concerns about the country's economic future, making this study pertinent. The discussion of ways to reduce the budget deficit, including fiscal consolidation and austerity measures, is aided by this study. To achieve this, various economic variables was ascertained from 1980 to 2019 for examination. The study's findings showed that budget deficit and economic growth of Ghana are positively related. The relationship has policy implications because it shows that rising budget deficits are good for the nation's ability to grow economically. But the downside to this is that the country in the short period faces economic crisis and if not manged well could inevitably lead to an economic recession which has often been the case in Ghana. This has often resulted in higher borrowing, inflation and increased national debt (Cohen 2023).
Additionally, the analysis found that GDP and labour force participation continue to be the main drivers of economic growth in Ghana. Thus, to effectively promote economic growth in the nation, the Ghana government should collaborate with the private sector, improve accountability of state funds, and rigorously engage in social welfare activities. Additionally, there should be enforcing of budget tightening policies like cost containment and fiscal consolidation without sacrificing its top priorities.