Empirical Analysis of the Causal Relationship between Gas Resource Rent and Economic Growth: Evidence from Ghana

Abstract

The paper examine the causative relationship between oil resource rent and economic growth. We use the Autoregressive distributed lag model (ARDL) and Toda-Yamamoto approach as estimation strategy. Contrary to the widespread belief that natural resource extraction (oil resource rent specifically) spurs economic growth, we find that oil resource rent has an insignificant positive effect on economic growth. We also find a unidirectional causative relation between oil resource rent and economic growth, flowing from economic growth to gas resource rent without any feedback effect. Our findings implies that as the Ghanaian economy grows and expands in term of economic activities, the demand for gas increases which is likely to be imported from the rest of the world. Hence, it will be beneficial for government draw short and long term plans concerning gas production in Ghana. The short-term plan should aim at expanding the existing gas producing/extracting firms while the long-term plan should target setting up a new gas firms in Ghana. This will contribute to economic growth of Ghana. Similar conclusions can be drawn for developing countries with similar socioeconomic and demographic setting like Ghana. Hence, our empirical findings/results are relevant beyond Ghana’s boundary.