Government Expenditure and Economic Growth Nexus in Ghana

Abstract

Purpose: Economic growth is widely regarded as a crucial indicator of economic advancement within a nation, as it has significant implications for the provision of state benefits, the improvement of living standards, and the generation of employment opportunities. The present study employed a time series analysis spanning from 1983 to 2018, focusing on Ghana, in order to comprehensively examine the diverse impact of both aggregate and disaggregated government expenditure and debt on the country's economic growth.

Methodology: The study conducted initial examinations, including unit root tests, cointegration tests, and correlation matrices, to determine the statistical reliability and validity of the data series for the research. The long-run parameters were estimated using the two-stage least square regression method, the autoregressive distributed lag method, and the threshold regression method.

Findings: Based on our research, it has been determined that government expenditure exerts a positive and statistically significant influence on overall economic growth. However, when examining the disaggregated effects, it becomes evident that consumption expenditure has a positive and significant impact on economic growth, whereas capital expenditure has a negative effect on economic growth.

Unique Contribution to Theory, Practice and Policy (Recommendations): In relation to the prevailing economic conditions characterised by periods of prosperity or recession, it is evident that the government should prioritise its attention towards external debt rather than domestic debt during times of economic expansion. Moreover, during periods of economic downturn, it is imperative for the government to prioritise foreign direct investment as a means of financing its budget, rather than relying on debt