Asymmetric effects of financial development on economic growth in Ghana

Abstract

ABSTRACT For most part, extant studies on financial development–economic growth nexus have assumed a symmetric link through the imposition of linear specifications. However, such relationships do not account for possible asymmetries in the impact of finance on economic growth. In the case of developing countries, such links are crucial and need far more nuanced analysis given the bourgeoning financial sectors. This study, therefore, examines the dynamic asymmetric effects of financial development on growth in Ghana over the period 1980–2016 relying on a nonlinear autoregressive distributed lag approach to cointegration. Our findings reveal the existence of a long run asymmetric relationship with both the positive and negative shocks to financial development exerting different long- and short-run effects on economic growth. Thus, the growth effects of financial development are conditioned on the nature of shock to the financial sector.