Abstract:
Ghana, like other developing countries, relies on external financial assistance for
budgetary support as well as capital projects. It is therefore anticipated that Foreign
Direct Investment (FDI) will continue to play a critical role in bridging the financial
gap and support government’s quest to provide public infrastructure and services for
Ghanaians. This study sought to establish relationship among macroeconomic
variables, specifically between inflation, FDI inflows and the policy of inflation
targeting in Ghana. This study was modeled on the Accelerator theory of investment.
The sample consisted of annual time series data spanning 26 years from 1990 – 2015.
The study used Error Correction Mechanism to integrate long run and short run effect
of inflation and other macroeconomic variables on FDI. The results indicated
significant negative long run relationship between inflation and FDI in Ghana. Also,
FDI is significantly error correcting at 43% annually while inflation targeting has both
short and long run positive effect on FDI. However, the result from the DOLS
estimation shows that inflation has no effect on FDI inflows. The policy implication
of the study is that Ghana needs to implement inflation lowering policies in order to
be able to attract FDI inflows. Also, strong GDP growth leads to larger market size,
the government need to initiate policies to maintain the momentum in GDP growth
necessary for Ghana to attract FDI. The study therefore concluded that Inflation
Targeting should be continued and not truncated since it affects the inflow of FDI
positively.
Description:
A Thesis in the Department of Economics Education, Faculty
of Social Science Education, submitted to the School of
Graduate Studies, in partial fulfillment
of the requirements for the award of the degree of
Master of Philosophy
(Economics)
in the University of Education, Winneba
MAY, 2020.
