Revisiting Domestic Savings and Economic Growth Analysis in Ghana

Abstract

This study set out to ascertain the relationship between domestic savings and economic growth in the midst of antecedent variables with yearly data during the period of 1970-2013. Using Johansen cointegration test and vector error correction model, the study found that, in the long-run, consumer price index, trade openness, foreign direct investment, and domestic savings have positive significant impacts on economic growth. With respect to the short-run estimates, the lags in domestic savings have negative but insignificant effects on economic growth. It is, therefore, incumbent on the government to uphold, guard, and sustain the political stability so jealously since it can create a conducive financial atmosphere necessary to mobilise savings in order to improve the growth rate of the Ghanaian economy. It is also recommended that the central bank pays a particular attention to rural savings mobilisation through the regulation of mobile banking by allowing the telecommunication companies to also pay interest to savers on their mobile deposits and establishment of banking financial institutions at least in each district in Ghana.