The Long and Short Run Determinants of Private Sector Investment in Ghana, 1970-2011

Abstract

Private investment is viewed as a powerful tool for maintaining and expanding the capital stock and production capacity of an economy. Many developed and developing countries have for several decades relied greatly on it to solve their macroeconomic problems, particularly those related to growth and development. For this reason the government of Ghana has taken steps to smoothen the way for the private sector through various policies to increase their investment levels. Hence, this study sought to focus on the various macroeconomic factors that either stimulate or hinder private investment in Ghana. Using an annual time series data from 1970 to 2011 the study employed the econometric techniques such as unit root tests, cointegration and error correction techniques within an ARDL framework. It relied mainly on the use of secondary data drawn from the Bank of Ghana (BOG), World Development Indicators (WDI) and the Africa Development Indicators (WDI). The results indicated that gross domestic product affected private investment in the long run and inflation in the short run. Exchange rate affected it both in the long and short run periods. It was however recommended that resources must be efficiently use to provide public development investments infrastructure to complement private investment performance in, more investment credit avenues must be created to increase its access, hence reduce interest rate and to encourage private investment. Finally, growth must be promoted through macroeconomic stability and conducive business environmental minimal inflation.