Determinants of Economic Growth in Ghana: Parametric and Nonparametric Investigations

This paper’s goal was to look for robust evidence on the determinants of economic growth by complementing the usual parametric time series analysis with nonparametric local linear kernel regression. The evidence from the two seemingly competing approaches (parametric versus nonparametric), complemented each other in this paper. However, the nonparametric model provided further evidence on the non-linearity of the relationship between real GDP on the one hand and labor force and terms of trade on the other. In sum we have robust evidence that the labor force, investment rate, financial development, terms of trade and trade openness are key drivers of growth in Ghana. Inflation has been found not to be a robust determinant of long run economic growth in Ghana. With the exception of inflation and trade openness, all the other regressors have positive impact on growth from both the parametric and nonparametric models.