Effect Of Foreign Aid On Sectoral Growth In Ghana

Abstract

Every country wants to achieve substantial growth in the economy. This is because the growth in the economy should have an effect in the lives of the wealthy and the poor; from the president of the country, to the parliamentarian right down to the farmer in a village in the remotest part of the country. In Ghana, although there have been studies on economic growth and foreign aid, a few number of these studies have looked at the effectiveness of foreign aids in the agricultural sector that can lead to economic growth in recent times. The key objective of this study is to examine the effects of foreign aid on economic growth in Ghana looking at three key sectors of the economy. This research is important as it brings to light how effective foreign aid is on the growth of the economy in the country. The sample period 1990-2015 is used as a result of the fact that prior to the 1990s era, the Ghanaian economy was barely liberalized whilst data is available for just up to 2015 from the World Development Indicator (WDI) data source. The key findings of this work is that foreign aid has a positive and significant influence on the services sector in both the short and long run. However, foreign aid does not have a significant impact on agricultural sector in the short run but in the long run, it has a significant impact on the agricultural sector. Additionally, foreign aid has no impact on the industrial sector in the short run but it has an insignificant negative relationship in the long run. As recommendations, national agencies should opt for grants and other technical development instead of loans to grow the service sector and agricultural sector. The industrial sector should also be looked at through innovation and technology. It can be concluded that, the growth in Ghana’s industrial sector cannot be achieved without the domestic revenue mobilization to boost up the growth of the sector. The over-reliance of many sectors of the economy usually results in low productivity and off target achievement in the country leading to small productivity and output.