Abstract

The study examined the relationship between financial liberalization and productivity growth of the three economic sectors in Ghana by using the yearly data over the period 1970-2013. In the analysis; the credits provided to private sector, investment, trade liberalization and capital account openness are considered as indicators of financial liberalization while sector level value added as a percentage of GDP represents productivity growth. The stationarity of the series and the long run relationship are analyzed by means of Zivot-Andrews (1992) and Clemente, Montanes and Reyes (1998) tests and Gregory Hansen tests in which structural breaks are considered. The findings of the study revealed that increasing spending on the productive sectors of the economy will yield a positive result of sustainable productivity growth at sector levels. However, government initiated structural reform that is not accompanied by sound macroeconomic policies may not have a lasting effect, since the effect of such reform in the long run growth path could be thrown out of gear by other external shocks. The positive effect of financial liberalization on productivity growth can be broadly confirmed in all the three economic sectors. Future studies could be focused on whether financial liberalization will make anticipated impact on sector level productivity growth using primary data from the various sectors of the economy in a survey study using structural modeling.

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