THE RELATIONSHIP BETWEEN GOVERNMENT RECURRENT EXPENDITURE AND ECONOMIC GROWTH IN GHANA

Abstract

ABSTRACT

This study set out to explore the correlation between the ongoing financial commitments of the government and the economic advancement in Ghana, utilizing the Johansen Cointegration model and analyzing annual time series data spanning from 1990 to 2020. The objective was to assist policymakers in formulating judicious decisions regarding public spending in Ghana. The findings revealed a substantial positive impact of government recurrent expenditure on long-term economic growth, although such a correlation did not hold true in the short term. Additionally, the study highlighted the significant influence of the Covid-19 pandemic on recurrent expenditure, with a discernible upward trend in government recurrent expenditure beyond 2019. Employing a Granger Causality Wald Test, the results demonstrated a one-way causality from government recurrent expenditure to economic growth, aligning with the Keynesian Theory of public expenditure while contradicting Wagner’s Law. In light of these results, the study recommends that both the government and the Ministry of Finance evaluate such expenditures not solely based on economic returns but also consider technical, administrative, and financial feasibility. The establishment of transparent criteria for allocation decisions, along with a commitment to transparency and accountability, is crucial for effective policy-making.