Abstract
The study revisits the debt-growth nexus and broadens the argument to examine the unique effect of government debt on investment in Ghana. Data from World Development Indicators on the Ghanaian economy were sampled from 1990 to 2015. The empirical results from the Multiple Linear Regression (MLR) suggest an inverse relationship between government debt and economic growth in Ghana. In addition, a percentage increase in government debt reduces investment by 0.65%; implying that government debt harms investment due to fungibility of debt and accompanying debt repayment responsibilities. Policy ramifications resulting from the study are that the Ghanaian government should restructure public debt management to eliminate debt fungibility and reduce debt to GDP ratio as well. Keywords: investment, growth, government debt, Ghana, debt fungibility DOI : 10.7176/RHSS/9-3-07
Highlights
The constant returns to scale condition of the Solow-Swan neoclassical growth theory advances that doubling the rival inputs leads to doubling output; inferring that a large inflow of resources is a necessary condition to achieve growth
The results show low capital investment to the generation of the growth in the country
It is no surprise that Ghana government continuously source for debt to boost investment
Summary
The constant returns to scale condition of the Solow-Swan neoclassical growth theory advances that doubling the rival inputs leads to doubling output; inferring that a large inflow of resources (for example capital) is a necessary condition to achieve growth. The seminal work of Solow (1956) on ‘contributory to theory of economic growth’ confirm that countrywide growth rate is determined by the savings rate, incremental output-capital ratio, depreciation and population growth He explains that the rate of growth depends on the rate of investment in these growth factors. Ghana’s public debt as a percentage of GDP which fell from 112% in 2000 to 26% in 2006 due to debt cancelation is on the rise again with a current ratio of 72% (World Bank, 2017) These large borrowings are intended to cushion the country’s consistent budget deficit. Large segment of the literature offers generalized cross-country analysis which makes it difficult to identify the country specific context
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
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 call
