The effect of bank loans on sectoral growth in Ghana
Date
2016-04
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Abstract
This paper applies the Barro-regression model on data obtained from 2008 to 2014, to
assess whether bank loans affect sectoral growth. This is to test whether finance has
an impact on growth as proposed in literature. Sectoral Distribution of Credit is the
independent variable while the Value added by Sectors represents the dependent
variable. Inflation, Monetary Policy Rate, USDGHS exchange rate, Balance of
Payment and Gross Domestic Product are control variables in the analysis. The
independent variable was instrumented using Money Supply (M2) to eliminate the
problem of endogeneity resulting from reverse causality.
This paper finds that bank loans distributed to the sectors have a significant effect on
the growth of the sectors. Bank loans to Agriculture and Industry have a positive
effect on the growth of the respective sectors. While bank loans to the Services sector
has a negative and small effect on the growth of the Services sector.
These results suggest that there may be firms in the Services sector that are not bank
loan dependent and hence why the coefficient value is low. Firms here may be better
developed than others and able to raise funds through other mediums like equity and
debt. The government should focus on encouraging these alternative sources of
finance. They can invest in training programmers for Agriculture and Industry and
implement favorable policies like lower lending rates to benefit the sectors. Investors
can also buy debt and shares within companies in the Services sector as they may
benefit from improved profits.
Description
Thesis submitted to the Department of Business Administration, Ashesi University College, in partial fulfillment of Bachelor of Science degree in Business Administration, April 2016
Thesis submitted to the Department of Business Administration, Ashesi University College, in partial fulfillment of Bachelor of Science degree in Business Administration, April 2016
Thesis submitted to the Department of Business Administration, Ashesi University College, in partial fulfillment of Bachelor of Science degree in Business Administration, April 2016
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Keywords
Ghana, bank loans, growth, services sector, agriculture sector, industry sector