The Long - Run Effects of Fiscal Deficit on Economic Growth in Ghana

The Study attempted to highlight and examines the effects of fiscal deficit on output growth in Ghana for the period 1970 to 2000. Addressing the questions raised in the problem statement as to what has been the relationship between fiscal deficits and economic growth over the period 1970 to 2000, it was evident that deficit impedes growth in Ghana. Furthermore, the theoretical exposition buttress that deficit have a negative effect on growth. A time series analysis was conducted with particular attention paid to the causal relationship between deficit and growth in the context of Granger Causality Test. The results provide evidence that there is a relationship between deficit and output growth.

The outcome of the empirical results, based on the long run deficit – growth model suggests that changes in deficits, inflation, and the nature of the political environment have a negative effects on growth whilst exports, the level of money stock, Foreign Direct Investment and Private Investment have a positive impact on growth.