Do Macroeconomic Factors Significantly Affect Economic Growth? Evidence from Ghana
Do Macroeconomic Factors Significantly Affect Economic Growth? Evidence from Ghana

Summary/Abstract: Macroeconomics examines the entire economy using various indicators such as investment, exchange rate, unemployment rate, and trade. These indicators contribute either positively or negatively to economic growth. Following Ghana’s economic reforms in 1983, its economy underwent significant transformations, impacting it in various ways. This study investigated selected macroeconomic variables (external debt, FDI, inflation, real effective exchange rate, and trade openness) that influence Ghana’s economic growth. The study analyzed time series data from the World Bank spanning from 1991 to 2021 using econometric methods, including the Johansen cointegration, Ordinary Least Squares (OLS), and distributed lagged model. The cointegration results revealed a long-run relationship between the variables. The OLS findings indicated that external debt, FDI, and trade openness positively impacted economic growth, while inflation and unemployment rates had negative effects, with GDP serving as a proxy for economic growth. Additionally, the results showed that the real exchange rate had no significant effect on Ghana’s economy. Conversely, findings from the distributed lagged model provided evidence that inflation, external debt, and FDI impact spread over a certain period. Based on these findings, the study recommends that the Ghanaian government invest external loans in sectors capable of boosting economic growth and provide investment incentives to attract more investors.

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