Domestic credit and the balance of payments in Ghana

Abstract

This model strives to assess the relationship between domestic credit and the balance of payments in Ghana during the 1961—75 period in an effort to guide policymakers in generating credit policies aimed at reaching a particular balance of payments objective. An equation is derived and estimated which specifies the relationship between domestic credit, exports, capital flows, and net foreign assets within a constraint imposing balance of payments equilibrium. The general conclusions of the analysis are that excessive increases in domestic credit were the principal cause for the balance of payments deficits incurred by Ghana during the period considered.