An OLS Approach to Modelling the Determinants of Private Investment in Ghana

Abstract

After independence, most developing countries embraced the development paradigm of import substitution. Nevertheless, in the 1980s, there was a shift in development paradigm from import substitution to the private sector-led development strategy to boost growth in developing countries. The study analyses the determinants of private investment in Ghana using a time series data from 1980 to 2010 with the aid of multiple linear regression model. It was revealed that factors that have a significant impact on private investment in Ghana were public investment, credit supply to the private sector, external debt, openness of the economy, corporate tax and democracy. Nevertheless, variables like: GDP growth, real interest rate, inflation and real exchange rate were not statistically significant. The study therefore recommends a tighter fiscal policy to reduce the crowding out effect on private investment. Foreign trade and trade liberalization must be encouraged to ameliorate private investment in Ghana.