Central Bank Independence and Economic Growth of Ghana: What Inflation and GDP Per Capita Growth Rates Matter?

Abstract

The study analyzed data from the World Bank's World Development Indicators, Worldwide Governance Indicators, and Heritage Foundation's Monetary freedom index from 1996 to 2017 to determine the GDP per capita growth and inflation rates require total independence of the central bank of Ghana with threshold regression method. Per the analysis, it was observed that the impact of central bank independence is positively related to economic growth when the inflation threshold is less than 26.1% at a significance level of 5% with an elasticity coefficient of 0.07. On the other hand, when the inflation threshold is greater than or equal to 26.1% with an elasticity coefficient of 0.142 at a significance level of 1%, central bank independence is positively related to economic growth. Nonetheless, the GDP per capita (PPP) growth rate witnessed a decline from 5.8% in 2017 to 4.1% in 2018 and 4.0 in 2019, respectively. Evidently, the regression threshold was pegged at 5.8% or above to significantly impact economic growth when central bank independence is relatively improved. Furthermore, there is an inverse relationship between inflation variability, economic growth variability, and central bank independence. The earnest responsibility of politicians is to persistently safeguard, protect and ensure the implementation of central bank independence over time; perhaps the able requirement of government and politicians is to understand and explain ultimate reasons regarding the entrustment of power and authority to an independent monetary body to see to the well-being of forthcoming generations and present ones as well