Daniel Sakyi

Trade openness, income levels, and economic growth: The case of developing countries, 1970--2009

This paper attempts to investigate the extent to which trade openness has had an impact on the levels of income and rates of growth in a sample of 115 developing countries for the period 1970–2009. Additionally, to assess whether there is an income level threshold for a country to benefit from international trade, the sample is broken down into three mutually exclusive groups of countries: low-income, lower middle-income, and upper middle-income countries. The main novelty of the paper lies on the use, on the one hand, of a new and better trade openness measure and, on the other hand, of non-stationary heterogeneous panel cointegration techniques to cope with the problem of cross-sectional dependence. The results show a positive bi-directional relationship between trade openness and income level in the long run, thus suggesting that trade openness is both a cause and a consequence of the level of income. The results for the short run, that is, the link between openness growth and economic growth, go in the same direction.

Foreign Direct Investment, Trade Openness and Economic Growth in Ghana: An Empirical Investigation

Abstract This paper investigates the long-run impact of foreign direct investment and trade openness on economic growth in Ghana (1970–2011) within the framework of the endogenous growth literature. Adopting the autoregressive distributed lag bounds testing approach to cointegration the results suggest that the interaction of foreign direct investment and exports has been crucial in fostering growth, thus validating the famous Bhagwati hypothesis. From a policy oriented point of view, the study recommends the channeling of foreign direct investment to export-oriented sectors and the promotion of export-led growth strategies in long-term development plans.

Democracy, Government Spending and Economic Growth: The Case of Ghana, 1960–2008

Economic theory predicts a growth enhancing activities of various core functions of government. Nonetheless, government spending in non-democratic countries often goes beyond these core functions, namely into rent-seeking and non-productive activities. This paper employs the Autoregressive Distributed Lag bounds testing approach to cointegration to investigate the extent to which democracy and government spending have had an impact on economic growth in Ghana over the period 1960–2008. The empirical results obtained are encouraging, revealing support for the high effi ciency of government spending in democracies’ hypothesis. The paper demonstrates that democracy and government spending go hand in hand to have a positive impact on economic growth in Ghana in both the long and short run. The fi ndings and policy recommendations of the paper provide vital information relevant for developing countries involved in the democratisation process. JEL Classification: C22, H50, O40

Macroeconomic determinants of interest rate spreads in Ghana

Purpose - The purpose of this paper is to examine macroeconomic determinants of interest rate spreads in Ghana for the period 1980-2013. Design/methodology/approach - The autoregressive distributed lag bounds test approach to cointegration and the error correction model were used for the estimation. Findings - The results indicate that exchange rate volatility, fiscal deficit, economic growth, and public sector borrowing from commercial banks, increase interest rate spreads in Ghana in both the long and short run. Institutional quality reduces interest rate spreads in the long run while lending interest rate volatility and monetary policy rate reduce interest rate spreads in the short run. Research limitations/implications - The depreciation of the Ghana cedi must be controlled since its volatility increases spreads. There is a need for fiscal discipline since fiscal deficits increase interest rate spreads. Government must reduce its domestic borrowing because the associated crowding-out effect increases interest rate spreads. The central bank must improve its monitoring and regulation of the financial sector in order to reduce spreads. Originality/value - The main novelty of the paper (compared to other studies on Ghana) lies on the one hand; analysing macroeconomic determinants of interest rate spreads and, on the other hand, controlling for the impact of institutional quality on interest rate spreads in Ghana.

Effects of trade and FDI on economic growth in Africa: an empirical investigation

Abstract The Bhagwati hypothesis predicts a growth enhancing effects of trade (exports) and foreign direct investment (FDI) interaction. This paper tests the validity of the Bhagwati hypothesis by investigating the extent to which the interaction of trade (exports) and FDI has had an impact on economic growth for a sample of 45 African countries over the period 1990–2014. To do so, we estimate an augmented endogenous growth model with the aid of a dynamic system generalised method of moment (GMM) estimation technique, which adequately cope with potential endogeneity issues. The findings reveal support for the Bhagwati hypothesis and provide vital information for policy formulation aimed at promoting more credible export-promotion strategies and channelling of FDI into export-oriented sectors in long-term development strategies in African countries.

The Effects of Trade and Trade Facilitation on Economic Growth in Africa

This study investigates the effects of trade and trade facilitation on economic growth in Africa. To do so, we measure trade facilitation by means of three indicators, namely trade, export and import related costs, constructed by using principal component analysis. These indicators, in addition to several policy-relevant variables, are used as exogenous variables to estimate an augmented growth model which, with the aid of a dynamic system GMM estimation technique, properly addresses potential endogeneity concerns. The findings suggest that trade facilitation serves as an important channel through which trade affects economic growth.

Capital Inflows and Domestic Investment in Sub-Saharan Africa Evidence from Pooled Mean Group (PMG) Estimation Approach

The issue of whether capital inflows promote domestic investment has been of major concern especially in developing countries considering their massive dependence on these inflows. To this end, we make a case for 25 sub-Saharan African countries, using foreign direct investment and external debt as proxies for capital inflows, and the pooled mean group estimator over the period 1981–2010. The results reveal that foreign direct investment positively impacts domestic investment, but external debt has a negative impact on domestic investment in the long run. This implies that increase in foreign direct investment and/or reduction in external debt will promote domestic investment in sub-Saharan Africa. Therefore measures have to be put in place to attract more foreign direct investment and reduce the inflow of external debt in the region.

Globalization, Democracy, and Government Spending in Sub-Saharan Africa: Evidence from Panel Data

Globalization represents one of the most influential forces determining the future of countries. The increasing integration of the world economy has led to a growing interest in its effect on national economies. With extraordinary global interdependence, increased financial liberalization, investment flows and international trade, it is obvious that we live in a global village. Accordingly, it can be said that not only can globalization be described as one of the most dominant forces in the present day world economy, but also that no nation can exist in isolation in today’s world (Zhuang & Koo, 2007).

Does Interest Rate Matter to the Ghanaian Stock Market

Stock market and interest rate are two vital factors for financial deepening and economic development of any country. Understanding the effects of interest rate on stock market performance provides important implications for policies towards financial market development. This paper investigates the impact of interest rate on stock market capitalisation in Ghana using monthly data for the period July 2011 to April 2015. The autoregressive distributed lag bounds test approach to cointegration was used for the estimation. The result reveals that, in the long run, interest rate improves stock market capitalisation whilst the opposite is true for the short run. Specifically, the results indicate that, in the long run, long term interest rate has greater impact on stock market capitalisation than short term ones. In the short run, however, long term interest rate has the least impact. The paper concludes that a considerable control of interest rate in Ghana will be of great benefit in the short term for stock market development.

Analysis of the drivers of Ghana's energy demand change using the Laspeyres index method of decomposition: Q-effect, I-effect and S-effect

Since independence, Ghana has experienced four major power crises as a result of the low water level in the hydro dams to generate the required amount of power for the country as well as limited and expensive supply of crude oil and gas. These energy supply constraints make it imperative for the country to rely on demand‐side management policies to address the energy crisis of the country. However, demand‐side management policies that are applied in generic terms without knowing the exact cause are likely to fail. This study therefore decomposes the factors that influence energy consumption into activity effect, intensity effect and structural effect, so that policymakers will know which factor(s) and also the sectors of the economy that are responsible for the large increases in energy consumption. This way, policymakers will apply the appropriate demand‐side management policy to a particular factor(s) and the sectors causing the increase to get the desired results. The study finds that activity effect is the main driver of energy consumption in Ghana.