Financial Innovations and Economic Growth in Ghana: Evidence from Autoregressive Distributive Lags (ARDL) and Granger Causality Approaches

Abstract

This paper looked at the relationship and Granger causality between financial innovations and economic growth in Ghana, for the period 1963 to 2009. We adopted a simple endogenous growth and the ARDL cointegration models to aid in establishing both the long run and short run relationships between financial innovations and economic growth in Ghana. In addition Granger causality was estimated to determine the direction of causality. The results showed that financial innovation has short run positive effect on economic growth. However, in the long run, financial innovation is detrimental to economic growth. Causality also runs from financial innovations to economic growth. The evidence advocates for regulations toward improving financial innovations through long term savings.