Abstract
This study sought to examine the effects of financial dollarisation on economic growth in Ghana. The autoregressive distributed lag (ARDL) approach to cointegration was applied on quarterly data from the World Bank and Bank of Ghana (BOG) for the period of 1999 to 2018. It was revealed that financial dollarisation exhibited a negative and statistically significant effect on economic growth both in the short-run and long-run. Based on the findings, it is recommended that the Bank of Ghana should develop the financial market by continuing the implementation of the financial sector reforms to foster a growing financial sector to promote economic growth in the economy. Keywords : Autoregressive distributed Lags, Financial dollarisation, Economic growth, Foreign currency deposit, Ghana. DOI: 10.7176/JESD/11-19-03 Publication date: June 30th 2020
Highlights
The increasing rate of demand for foreign currency in recent times poses a great concern to policy-makers as far as decision-making in developing countries are concerned
Labour force (L) and Real exchange rate (RER) are negatively skewed implying that majority of the values are greater than their means
12.0 Conclusions The study established that exchange rate, financial development, interest rate differential and real output drive financial dollarisation in Ghana
Summary
The increasing rate of demand for foreign currency in recent times poses a great concern to policy-makers as far as decision-making in developing countries are concerned. What is more worrying is that most of these countries have witnessed the use of other countriescurrencies as store of value, unit of account, or medium of exchange and in most cases, foreign currencies tend to be used extensively or even replaced the local currencies This has sparked attention to financial dollarisation in many developing economies of which Ghana is no exception. This phenomenon is deemed to have been caused by macroeconomic instability leading to high inflation, volatility in exchange rates, weak institutions, prolonged depreciation of the local currencies, and the likes. Progress in reducing dollarisation in Ghana has lagged behind to other regions and, in this regard, it is legitimate to ask whether this phenomenon is an important concern in Ghana (Mecagni et al, 2015)
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