Note on a computable general equilibrium model for Ghana: Identifying growth areas

Abstract

This note concerns identification of target sectors for development in a SubSaharan African (SSA) country, Ghana. Such target identification requires economy-wide analysis for which computable general equilibrium (CGE) models, the most recent of economy-wide modeling techniques, are well suited. Although the technique is becoming commonplace, there are relatively few CGE models of SSA countries in particular, even though these are the countries in greatest need (see Addy, 1998). The development literature recognizes several engines for economic growth including infrastructure and equipment investment, tradeor export-led growth, technological change, institutional development, and human capital development (see, e.g., Blomstrom 1996; Ito & Krueger 1995; Todaro 1994). The focus here is on investment in infrastructure and equipment (i.e., investment in physical capital) as an engine for growth. To identify key sectors, investment in each sector is simulated separately, and the change in real GDP is used to rank the sectors. The simulations involve exogenous increases in investment expenditure of one billion cedis for new factor capital formation, by sector of destination. In many SSA countries, foreign direct investment (FDI) forms the major portion of investment. Thus, to investigate the effects of source of investment capital, the simulations are conducted under two scenarios: FDI and domestic capital investment (DCI). The scenarios depict the extremes of several possible combinations of capital from both sources. The results are shown in Fig. 1.