The Effect of External Debt on Economic Growth in Ghana: An ARDL Approach

Abstract

This study investigated the long and short-run impact of external debt on economic growth in the context of Ghana using the sample period spanning from 1980 to 2016. The study also examined the Ghana’s external debt trend analysis over the sample period considered for this study. Theoretical and empirical evidences indicates that external debt can either exert negative or positive impacts on economic growth depending on how the external funds acquired is injected into the economy. The variables employed for this were found to be I(0) and I(1) and as result Autoregressive Distributed Lag bounds test to co-integration econometric technique was adopted.

The results of this study revealed that the external debt of Ghana has increased by 1,430% from 1980 to 2016. Also, external debt of Ghana was found to have positive significant impacts on economic growth of Ghana in the long run. The external debt servicing which is the cost of external debt was found to have negative insignificant impact on growth of Ghana. The study therefore recommend to policymakers to ensure that all external funding are injected into productive sectors of the economy in order to stimulate economic growth.