EXTERNAL DEBT AND GDP PERFORMANCE IN GHANA: A COINTEGRATION AND A VECTOR ERROR CORRECTION ANALYSIS

Abstract

The accumulation of external debt, along with its repayment conditions, has placed developing nations, like Ghana and other African countries, in an unfavourable fiscal situation. This study builds on earlier research in this area by looking into the connection between Ghana's external debt and the country's GDP performance. It does this by also looking at other macroeconomic variables, like inflation, unemployment, and gross national income, which could also affect GDP performance, and by using data from the most recent year to reflect the current state of the economy. The secondary data was collected annually for this research work, spanning from 1990 to 2022, via the World Bank. A Johansen cointegration, VAR model, and VECM were applied for the analysis of the data collected in this study. The result of the analysis carried out in this study shows that there is a significant association among GDP performance, external debt, inflation, unemployment, and GNI in both the short run and the long run. The findings also show that external debt in the short and long run has a detrimental effect on Ghana's GDP performance, indicating that an increase in external debt contributes to a decline in Ghana's GDP performance. Consequently, the government should increase the country's productivity and utilise the external debt for infrastructural development that will enhance national revenue generation and mitigate further borrowing in the future that will impede the country's GDP performance.