Financial development, international trade and economic growth: the case of Ghana

Abstract

This study aims to investigate the long run relationship and the possible direction of causality that may exist between financial development, international trade and economic growth in the case of Ghana for the period 1965-2017. The Autoregressive Distributed Lag bounds (ARDL) testing approach to cointegration and the Granger causality under the Vector error correction (VECM) model is employed to measure the relationships. The results from the bounds test confirmed the existence of a long run relation among the series. Also, the results showed that the development of the financial sector was indeed, very conducive for growth whereas, international trade appeared to be a non-robust determinant of growth in Ghana. The causality test results suggested a unidirectional causality running from financial development to growth and from trade to growth. Thus, it was concluded that Ghana was characterized by both the supply-leading and trade-led growth hypotheses.