PROMOTING ACCESS TO AFRICAN RESEARCH

Journal of Business Research

Log in or Register to get access to full text downloads.

Remember me or Register



DOWNLOAD FULL TEXT Open Access  DOWNLOAD FULL TEXT Subscription or Fee Access

An Analysis of the Effect of External Debt on Crowding-Out of Private Investment in Ghana

JK Tuffour

Abstract


The objective of the study is to determine the effect of external debt on investment by analysing crowding-out effect of private investment and debt overhang in Ghana over the 1970-2009 period using time series data. Least square estimation techniques and multiple regression analysis were used. The study revealed that debt overhang existed for the study period through its crowding-out effect on private investment. Also, the huge debt and debt service raised future tax expectation and discouraged the private sector from undertaking investment projects. While the accelerator effect was present, the cost of investment goods negatively influenced private investment demand. Availability of credit seemed to have influenced the level of investment positively. The result shows that the poor macroeconomic environment has had impact on the desire to undertake investment activities by corporate individuals. Further analyses show that private and public investments are highly related, as public investment significantly enhances private investment. It is recommended that effort should be made to reduce government domestic borrowing, as that puts pressure on interest rate. This indicates that, to achieve high economic growth and employment creation, emphasis should be placed on improving private sector investment development, through facilitating investment growth by using appropriate macroeconomic policies.

Key Words: External Debt Accumulation, External Debt Service, Crowding-Out, Debt Overhang, Private Investment, Ghana




AJOL African Journals Online