Exploring the Budget Deficit-Economic Growth Nexus: New Evidence From Ghana

Nkrumah, Kojo Oppong; Orkoh, Emmanuel; Owusu, Augustine Mensah

doi:10.13014/k2nz85vx

Cited by 12 publications

(14 citation statements)

References 9 publications

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“…They found that government expenditure on transport and communication affects private investment positively in developing countries while social security and welfare expenditure of government hinder investment in both developed and developing countries. Nkrumah et al (2016) conducted a study on the relationship between budget deficit and economic growth of Ghana. Based on their trend analysis as well as econometric models they found negative impacts of budget deficit on economic growth.…”

Section: Review Of Empirical Studiesmentioning

confidence: 99%

Does Budget Deficit Impede Economic Growth? Evidence from Bangladesh

Biplob¹

2019

JOMEINO

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The purpose of this study is to investigate the impacts of budget deficit on economic growth in Bangladesh over the period of 1981-2017. This study employed the autoregressive distributed lag (ARDL) model to capture long-run cointegration along with longrun and short-run elasticity of the explanatory variables. Moreover, directional causalities between the variables used in this study have been checked using vector error correction model (VECM). The results of the analysis under ARDL model revealed that in case of Bangladesh, budget deficit positively affects economic growth both in long-run and short-run while government total expenditures lead to increase GDP only in long-run. These findings support the Keynesian proposition that budget deficits crowd-in private investments resulting economic growth. Furthermore, directional causality tests conducted using VECM explored unidirectional causality running from budget deficit to economic growth while feedback causality has been found between governments total expenditures and economic growth. For policy implications, this research provides evidence that in an emerging economy like Bangladesh, government spending through deficit financing can drive positively in the level of economic growth. Bangladesh, however, should not have the luxury of forgetting about the bad consequences of consistent and gradually increasing budget deficit at all.

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Section: Review Of Empirical Studiesmentioning

confidence: 99%

Does Budget Deficit Impede Economic Growth? Evidence from Bangladesh

Biplob¹

2019

JOMEINO

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“…In the midst of the ongoing controversy regarding the relationship between fiscal deficit and economic growth, we find very little work on Ghana. Only a handful of studies (Larbi, ; Antwi et al ., ; Akosah, ; Nkrumah et al ., ; Kurantin, ) have investigated the subject within a Ghanaian context and most of these studies left a number of issues hanging. For instance, these studies focused only on the direct impact and the long‐run relationship between deficit and economic growth using Johansen cointegration and autoregressive distributed lag (ARDL) models which do not account for threshold effects.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Thus, the crucial weakness of such panel studies calls for more nuanced and in‐depth individual country‐level studies using rich time series data. In the case of Ghana, however, the relatively scanty studies have focused on examining the long‐run relationship between fiscal deficit and economic growth without systematically analysing and estimating the optimal level of fiscal deficits (see Akosah, ; Nkrumah et al ., ; Kurantin, ). This study thus ascertains the path of optimal deficits for Ghana.…”

Section: Introductionmentioning

confidence: 99%

Optimal Deficit Financing in a Constrained Fiscal Space in Ghana

Alagidede¹,

Mensah²,

Ibrahim³

2018

African Development Review

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Ghana's public debt has been on the rise in recent years, raising questions of fiscal sustainability. At the same time prices of Ghana's main commodities such as crude oil, gold and cocoa have not fared well in world markets. Coupled with an underdeveloped financial system and weak domestic revenue mobilization capacity, the higher public debt levels pose a significant challenge to macroeconomic stability, and long-run economic growth. This study contributes to a better understanding of the growth effects of high fiscal deficit in Ghana. We employ annual data spanning 1967-2013 and a sample splitting approach to examine the threshold level of Ghana's fiscal deficit and its impact on the country's economic growth. Our finding reveals an optimal fiscal deficit of 7.6 per cent of GDP. We find that the impact on economic growth of fiscal deficit is negative regardless of the sample splitting. However, our evidence shows that this effect is only statistically significant above the threshold. Although, the impact of fiscal deficit on growth is less clear and debatable, we document that fiscal deficit significantly hurts growth when the level exceeds the threshold. We discuss key implications for policy. Note 1. Results from our unit root tests (Augmented Dickey-Fuller and Phillips-Perron tests) also show that all the variables are stationary after first difference. The results are available upon request from the authors.

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“…Goher et al (2012) include timeseries considering the period 1978-2009, to investigate the influence of fiscal deficit on economic growth in Pakistan, applying regression analysis, the findings showed the adverse impact of fiscal deficit on economic growth. Nkrumah et al (2016), used the Autoregressive Distributed Lag (ARDL) approach with trend analysis to assess the relationship between Ghana"s fiscal deficit and economic growth from 2000 to 2015 with quarterly data. Econometric results showed a significant adverse effect of budget deficits on economic growth.…”

Section: Empirical Literaturementioning

confidence: 99%

The Assessment of Fiscal Deficit on Economic Growth in Transition Countries of South-Eastern Europe

Gllogjani

Balaj

2021

JLIA

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The overall aim of this research is to observe the impact of fiscal deficit on economic growth in the transition economies of South-eastern Europe. The fixed-effects and dynamic linear regression were used to carry out this revision. The data used in this revision are quantitative data annually and cover the period 2005-2019. The outcomes detect that there is a confident and statistically important effect among the fiscal deficit and economic growth for the transition economies of Southeast Europe, supporting the Keynesian theory. Furthermore, the outcomes of this research show that public debt to GDP, foreign direct investment in GDP, exports, and imports in GDP have an important effect on economic growth. Findings have shown that public debt and imports have a positive influence on economic growth, unlike exports and foreign direct investment, which showed an adverse effect on economic growth. Moreover, for other additional factors, the inflation rate, the employment rate, and the real interest rate, the results of the study do not show any significant consequences on economic growth. The research also contributes in the macroeconomic aspect to the opening of discussions among the relevant stakeholders, including those coming from the policy-making area.

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Exploring the Budget Deficit-Economic Growth Nexus: New Evidence From Ghana

Cited by 12 publications

References 9 publications

Does Budget Deficit Impede Economic Growth? Evidence from Bangladesh

Does Budget Deficit Impede Economic Growth? Evidence from Bangladesh

Optimal Deficit Financing in a Constrained Fiscal Space in Ghana

The Assessment of Fiscal Deficit on Economic Growth in Transition Countries of South-Eastern Europe

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