Abstract
This study has investigated empirically the effect of financing cost on private investment in Ghana, over the period 1970 to 2010. To this end, the variables employed were classified as cost factors (interest rate, exchange rate, inflation rate) and non-cost factors (public investment, output, credit availability, external debt) of private investment. The Johansen co-integration technique was used to estimate the long-run private investment function for Ghana. Also, the Error Correction Model was used to determine the short-run dynamics. The study finds that all the cost factors had negative and statistically significant impact on private investment in Ghana, in the long-run. On the other hand, in the long-run, the non-cost factors impacted positively on private investment in Ghana, but external debt had an adverse effect. It also, finds that all the variables used, co-integrated with private investment in the long-run. This study provides original evidence that high cost of financing is associated with low private sector participation in investment activities in Ghana. Accordingly, the study recommends among others that long term policies should be directed towards cost control and macroeconomic stabilization in order to boost private investment activities or programs in developing nations particularly, Ghana.
Highlights
Investment is fundamental to economic growth both in the developing and the developed nations
Badawi [33] in investing the impact of macroeconomic policies on private investment over the period 1969-1998, The results suggest that increase in interest rate has been deleterious to private investment, indicating that price of funds did matter for private investors in Sudan
The results show that output i.e. Real GDP has a positive and significant impact on private investment in the long run
Summary
Investment is fundamental to economic growth both in the developing and the developed nations. Investment is the flow of output in a given period that is used to maintain or increase the capital stock in any economy. It is an essential component of aggregate demands fluctuations in investment have considerable effects on economic activities and long-term economic growth. Private sector investment is noted as being directly related to economic growth in developing countries [1, 2]. Emphasis has been put on the development of the private sector in developing countries to help boost economic growth i.e. create more jobs, wealth, reduce unemployment and poverty, through vigorous participation in investment activities
Sign-in/Register to view highlights & summary Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
