Economic Growth in Ghana: An Empirical Investigation

Factors influencing economic growth are relevant to both developed and developing nations. To our knowledge, current literature on the factors influencing Ghana’s economic growth is limited. Therefore, to bridge this gap, this study examines the effect of foreign aid, foreign direct investment, physical capital, inflation, labor force and government expenditure on real GDP growth in Ghana between the years 1980 and 2010. The paper shows that, the long-run economic growth in Ghana is mainly explained through government expenditure, foreign aid, physical capital, inflation and foreign direct investment. In addition, a change in labor force in the short-run does not affect the economic growth in Ghana. It was found that, macroeconomic factors have both positive and negative correlation with gross domestic product. This paper therefore advocate that, government should invest in important projects that would add positive value to the country’s economic growth such project could be aiming, for instance, at improving labor force productivity by setting up a strong and high quality research and development sector that will mobilize and take into consideration all researches and to create favorable atmosphere to attract foreign investors. In addition, instead of government relying on foreign aid, it should rather create avenues that would domestically generate revenue.