An Estimation of the Impact of Financial Intermediation on the Economic Growth of Ghana; With Emphasis on the Private Sector

Abstract

It is an undeniable and acceptable fact that all economic agents namely; individuals, corporations and governments require money to meet their specific needs which may differ from one economic agent to another. The monetary activities of these economic agents which have to be financed by someone else exert an overall effect on the entire economy. The challenge here, therefore, is about the availability of banks’ credit and its allocation to the various economic agents as well as the economic results they deliver to Ghana’s economy. Thus, the basic issue which the study sought to dwell on is ‘how commercial banks’ credit allocated to the private sector impacts on the growth of the entire economy of Ghana’. The study conducted is exploratory in nature and the approach was purely quantitative making use of secondary data relating to financial intermediation and economic growth spanning from 1993 to 2018. Purposive sampling technique was used in selecting data and its source. To estimate the parameters in the econometric model stated in the study using times series data, Auto-Regressive Distributive Lag (ARDL) bounds testing approach to co-integration developed by Pesaran et al. was employed. Overall, the empirical evidence obtained indicates that there is a negative long-run relationship between domestic banks credit to the private sector and Ghana’s economic growth, though statistically insignificant at 5% significance level. In the short-run however, the negative relationship between the two variables is statistically significant at the same significance level.