External Debt and Economic Growth in Ghana

Abstract

This study analyses the effect of growth rate of external debt on the growth rate of GDP and finds out whether Ghana suffers from a debt overhang problem. The results from a Johansen multivariate cointegration method employed on our data showed that (i) there exists a stable long run relationship among GDP, labour force, investment, exports and external debt; and (ii) the long run effect of external debt on GDP has been positive and that Ghana is not suffering from any debt overhang problem. This means that importation of capital or reliance on external resources will help promote economic growth in Ghana. It is therefore. ecommended that every effort should be made by authorities to make Ghana much more attractive to external resources. The results of the study also indicate that military coups (political instability) have not been significant in explaining the growth rate of GDP in Ghana.