The Impact of Capital Budgeting on Economic Growth in Ghana

Abstract

The aim of this study is to examine the effect of capital budgeting on economic growth as well as the causal relationship between capital budgeting and economic growth in Ghana. The study employed secondary data from the World Development Indicators (WDI) and Ministry of Finance, Ghana, annual data spanning from 1990 to 2021 which was estimated with Autoregressive Distributive Lag (ARDL) cointegration technique. The findings revealed that there was statistically significant long run relationship between capital budgeting and economic growth from the bounds test. Again, capital budgeting significantly relates negatively to economic growth in both long and short run in Ghana. the study found out that Ghana’s capital expenditure is mostly spent on unproductive ventures. There were no causal relations between capital budgeting and economic growth in Ghana. The study recommends that government and policy makers should urgently direct capital budget to productive capital ventures with good returns and short payback period.