ABSTRACTThe purpose of the study is to examine the implications of financial development on the flow of foreign direct investments in Ghana over the period 1992-2018. Specific objectives include investigating the long run and short run relationships as well as analyzing the causal relationship between financial development and foreign direct …
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ABSTRACTThe purpose of the study is to examine the implications of financial development on the flow of foreign direct investments in Ghana over the period 1992-2018. Specific objectives include investigating the long run and short run relationships as well as analyzing the causal relationship between financial development and foreign direct investment in Ghana. The study adopted explanatory research design to ascertain the relationship. Data on these variables were extracted from the World Bank World Development Indicators (WDI). The analyses were presented using both descriptive and inferential statistical approaches. The descriptive statistics were presented in the form of means, standard deviation, minimum and maximum values. Findings on the long run relationship of financial development and foreign direct investment from the cointegration test results indicate a positive long run equilibrium relationship between domestic credit by the banks (financial development), economic growth, gross domestic savings, exchange rate, inflation, interest rate and foreign direct investment in Ghana. Findings on investigating the short run relationship showed that the lagged coefficient of financial development obtained negative impact on current values of foreign direct investment. This is an indication that domestic credit provided by the banks have a negative effect on FDI in the short-run in the Model as a one-year delay in the availability of domestic credit provided by the banks leads to a decline in foreign direct investment by 0.3145 percent at 5% level of significance. The study recommends to the Government to create the necessary environment in the financial sector to attract foreign direct investment into the economy.
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