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Effect of capital inflows on financial development in Ghana
DOI:
https://doi.org/10.22437/ppd.v7i1.6611Keywords:
Capital inflows, Financial development, Cointegration analysisAbstract
The study examines the effect of capital inflows on financial development in Ghana. The study employs the Johansen and Juselius multivariate cointegration approach in analysing the interactions between the variables using annual data spanning 1970 to 2014. The results show foreign direct investment (FDI), external debt, and remittance inflows have significant negative impact on financial development in the long run. Furthermore, there was significant negative relationships between external debt, remittance inflows, and financial development in the short run. However, the relationship between FDI and financial development in the short run was not significant. The study was only limited to Ghana. However, the study will help countries particularly developing countries in analysing inflows of capital and their effect on the development of financial sector for policy purposes. Furthermore, this study provides avenues for policy makers to properly formulate policies containing capital inflows for effective financial sector development. Also, the study will help policy makers in terms of how issues of capital flight must be addressed and how to take pragmatic steps to channel remittances inflows to productive sectors of the economy.
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References
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Ma, Y., & Lin, X. (2016). Financial development and the effectiveness of monetary policy. Journal of Banking & Finance, 68, 1-11.
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Owusu, K.G. (2008). Military Coups in Ghana, 1969–1985; a By-Product of Global Economic Injustices? MSc International and European Relations School of Management and Economics LinköPings Universitet-Sweden.
Romer, D. (1993). Openness and inflation: theory and evidence. The Quarterly Journal of Economics, 108(4), 869-903.
Siddiqui, K. (2014). Flows of Foreign Capital into Developing Countries: A critical review. Journal of International Business and Economics, 2(1), 29 – 46
Tachiwou, A.M. (2014). Corruption and economic development in West African economic and monetary union. Journal of US-China Public Administration, 11(6), 522-531
Takyi, P. O., & Obeng, C. K. (2013). Determinants of financial development in Ghana. International Journal of Development and Sustainability, 2(4), 2324-2336.
Adam, A.M., & Tweneboah, G. (2009). Foreign direct investment and stock market development: Ghana's evidence. Munich Personal RePEC Achieve (MPRA), 11985.
Adepoju, A.A., Salau, A.S., & Obayelu, A.E. (2007). The effects of external debt management on sustainable economic growth and development: Lessons from Nigeria. Munich Personal RePEC Achieve (MPRA), 2147.
Adeniyi, O., Omisakin, D., Egwaikhide, F. & Oyinlola, A. (2012). Foreign direct investment, economic growth and financial sector development in small open developing economies. Journal of Economic Analysis & Polic, 42(1), 105 – 127
Ahmed, M. (2017). Foreign Direct Investment in Oil-Exporting Countries: Long-run Determinants and Causal Relationship with Economic Growth. Leicester
Angmortey, B.N., & Tandoh-Offin, P. (2014). Does foreign capital crowd out domestic saving in developing countries? An empirical investigation of Ghana. International Journal of Economics and Finance, 6(8). 161 - 172
Arshad, Z., Aslam, S., Fatima, M., & Muzaffar, A. (2015). Debt accumulation and economic growth: Empirical evidence from Pakistan economy. International Journal of Economics and Empirical Research, 3(8), 405-410.
Aurangzeb, A.U.H., & Haq, U.A. (2012). Determinants of inflation in Pakistan. Universal Journals of Management and Social Sciences, 2(4), 89 - 96
Ayadi, R., Arbak, E., Ben-Naceur, S., & De Groen, W.P. (2013). Benchmarking the financial sector in the Southern and Eastern Mediterranean countries and designing 2030 financial sector scenarios. MEDPRO Technical Paper, MEDPRO Project, Brussels, 6(31).
Azeez, B., Aladapo, M., & Aluko, O.A. (2015). External debt or foreign direct investment: Which has greater significant economic impact. 11(19), 185–195.
Baltagi, B., Demetriades, P., & Law, S.H. (2007). Financial development, openness and institutions: evidence from panel data. World Economy & Finance, 7(5), 1 - 34
Barajas, A., Gapen, M.T., Chami, R., Montiel, P., & Fullenkamp, C. (2009). Do workers' remittances promote economic growth? (No. 2009-2153). International Monetary Fund
Chami, M.R., Jahjah, M.S., & Fullenkamp, C. (2003). Are immigrant remittance flows a source of capital for development (No. 3-189)? International Monetary Fund.
Chinn, M.D., & Ito, H. (2006). What matters for financial development? Capital controls, institutions, and interactions. Journal of development economics, 81(1), 163-192.
Comes, C.A., Bunduchi, E., Vasile, V., & Stefan, D. (2018). The Impact of Foreign Direct Investments and Remittances on Economic Growth: A Case Study in Central and Eastern Europe. Sustainability, 10(1), 238.
David, M.A., Mlachila, M.M., & Moheeput, A. (2014). Does Openness Matter for Financial Development in Africa? International Monetary Fund, 14(9)4.
Dickey, D.A., & Fuller, W.A. (1979). Distribution of the estimators for autoregressive time series with a unit root. Journal of the American statistical association, 74(366), 427-431.
Engle, R.F., & Granger, C.W. (1987). Co-integration and error correction: representation, estimation, and testing. Econometrica: Journal of the Econometric Society, 4(3), 251-276.
Esso, L. J. (2010). Threshold cointegration and causality relationship between energy use and growth in seven African countries. Energy Economics, 2(6), 1383-1391.
Feldstein, M. (1994). Tax policy and international capital flows. WeltwirtschaftlichesArchiv, 130(4), 675-697.
Fosu, A., & Aryeetey, E. (2008). Ghana’s post-independence economic growth. In: E. Aryeetey & S.M.R. Kanbur, (Eds.) The economy of Ghana: analytical perspectives on stability, growth, and poverty. Oxford: James Currey, 36–77
Fosu, A. (2002). Political Instability and Economic Growth: Implications of Coup Events in Sub-Saharan Africa. The American Journal of Economics and Sociology, 61(1), 329-348. Retrieved from http://www.jstor.org/stable/3487750.
Girma, S., & Gong, Y. (2008). FDI, linkages and the efficiency of state-owned enterprises in China. Journal of Development Studies, forthcoming.
Huang, Y. (2010). Political institutions and financial development: an empirical study. World Development, 38(12), 1667-1677.
International Monetary Fund (2010b). World Economic Outlook -Recovery, Risk and Rebalancing. Washington D.C.: IMF.
Jilenga, M. T., & Xu, H. (2016). The impact of external debt and foreign direct investment on economic growth : Empirical evidence from Tanzania. 7(2), 154–162.
Johansen, S., & Juselius, K. (1990). Maximum likelihood estimation and inference on cointegration-with applications to the demand for money. Oxford Bulletin of Economics and statistics, 52(2), 169-210.
Kwakye J.K. (2012). Financial intermediation and the cost of credit in Ghana. Institute of Economic Affair, Ghana, 1(36).
Ma, Y., & Lin, X. (2016). Financial development and the effectiveness of monetary policy. Journal of Banking & Finance, 68, 1-11.
MacDougall, G.D.A. (1960). The benefits and costs of private investment from abroad: A theoretical approach 1. Bulletin of the Oxford University Institute of Economics & Statistics, 22(3), 189-211
McKinnon, R., & Shaw, E. (1973). Financial deepening in economic development. Washington: Brookings Institution.
Mckinnon, R. (1973). Money and capital in economic development. Washington, DC: Brookings Institution:
Ncanywa, T., & Mabusela, K. (2019). Can financial development influence economic growth: The sub-Saharan analysis? Journal of Economic and Financial Sciences, 12(1), a194. https://doi.org/10.4102/jef.v12i1.194
Njangang, H., Nembot, N.L., Noubissi, D.E., & Fosto, K.P. (2018). The long-run and short-run effects of foreign direct investment, foreign aid and remittances on economic growth in African countries. MPRA Paper No. 89747. Available at: https://mpra.ub.uni-muenchen.de/89747/
Orji, A., Uche, A.S., & Ilori, E.A. (2014). Foreign capital inflows and growth: An empirical analysis of WAMZ experience. International Journal of Economics and Financial Issues, 4(4), 971-983.
Owusu, K.G. (2008). Military Coups in Ghana, 1969–1985; a By-Product of Global Economic Injustices? MSc International and European Relations School of Management and Economics LinköPings Universitet-Sweden.
Romer, D. (1993). Openness and inflation: theory and evidence. The Quarterly Journal of Economics, 108(4), 869-903.
Siddiqui, K. (2014). Flows of Foreign Capital into Developing Countries: A critical review. Journal of International Business and Economics, 2(1), 29 – 46
Tachiwou, A.M. (2014). Corruption and economic development in West African economic and monetary union. Journal of US-China Public Administration, 11(6), 522-531
Takyi, P. O., & Obeng, C. K. (2013). Determinants of financial development in Ghana. International Journal of Development and Sustainability, 2(4), 2324-2336.
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Published
2019-08-31
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- 2019-08-31 (1)
- 2019-08-31 (1)
How to Cite
Effect of capital inflows on financial development in Ghana . (2019). Jurnal Perspektif Pembiayaan Dan Pembangunan Daerah, 7(1), 85 - 102. https://doi.org/10.22437/ppd.v7i1.6611
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