Assessing the Relationship between External Debt Financing and Gross Domestic Product in Ghana
1Samuel Kwaku Gyampoh Obeng,2 Dr. Daniel Delali Kornu,3Dr. Oliver Dzogbede,4Dr. Emmanuel Opokuware,5Samuel Etornam Kornu
1Department of Finance, Kwame Nkrumah University and Science and Technology (KNUST), Kumasi, Ghana .
2,3Department of Accounting, Finance and Economics Evangelical Presbyterian University College- Ho, Ghana
4Finance Directorate, University of Environment and Sustainable Development, Somanya, Ghana
5Universidad Empresarial de Costa Rica, Costa, Business School of Costa Rica (UNEM)
https://doi.org/10.47191/jefms/v7-i6-37
ABSTRACT:
The level of external debt of a country is of fundamental importance in every economy, as external debt may reflect the effectiveness and efficiency of an economy. The study was motivated by the ever-increasing rate at which Ghana has consistently borrowed from external sources. This study aimed to assess the relationship between external debt financing and gross domestic product and establish the determinants of external debt financing in Ghana. Using selected time series data (Gross domestic product, external debt, population growth, inflation, Literacy rate, export of goods and service, general government expenditure, and interest on external debt, 1978 - 2017) based on literature reviewed on the macro economy of Ghana, the study employed Autoregressive Distributed lag model (ARDL) after the Augmented Dickey-Fuller test statistic and Philip Perron proofs not to be stationary at levels but stationary at first difference. For that matter, ARDL was used to assess the impact of external debt financing on GDP to establish the determinants of external debt. Diagnostic tests which include auto-correlation, heteroscedasticity, and normality were also performed. Based on the results of the study, it was concluded that, variables were related only in the short run but not related in the long run. It was recommended that, external borrowing, population growth, inflation, general government expenditure and literacy rate should be control since their coefficients proves to have negative impact on GDP and on external debts
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