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Economic Growth in Ghana 2

Economic Growth in Ghana 2

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Published by Mabel Dodoo-Quao

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Published by: Mabel Dodoo-Quao on Dec 10, 2010
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12/04/2013

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Economic Growth in Ghana: 1960-2000
Ernest Aryeetey and Augustin K. Fosu
This Paper was originally prepared for the AERC Growth Project
 
 1
Economic Growth in Ghana: 1960-2000
Ernest Aryeetey and Augustin K. Fosu
1. INTRODUCTION
It was fairly common in the 1980s and early 90s to read commendations of Ghana’seconomic growth achievements. Leechor (1994) described Ghana as a frontrunner in theeconomic reform process, and the Bretton Woods institutions regularly put Ghanaforward as a showcase of economic success in Africa. But this occurred at a time whenmany Ghanaians showed little appreciation of that growth achievement (Aryeetey andTarp 2000). The continuing fragility of the economy and the significant social costs of adjustment made it difficult to appreciate economic growth in a period of reforms. Whilethere is no doubt about the fact that the economic growth record of the last two decades,following reforms, differed from that of the first two decades in terms of consistency, it isalso clear that the factors behind the growth experiences of shorter periods in-betweenshow remarkable similarity. Whenever there has been considerable capital injection intothe economy, this has been followed by significant growth. It is the difficulty in makingthose injections consistently in the absence of structural change that has left the economystill fragile after four decades of independence.A possible explanation for the lack of public appreciation for the recent growthexperience could have been a certain sense of 
déjà vu
, having seen considerableadmiration from the rest of the world for being the first African country to becomeindependent from colonial rule in 1957, and experiencing rapid growth soon thereafter,an admiration whose import fizzled out soon after it began. Another possible reason for the perceived lack of appreciation may be the likelihood that the measured growth figureshad little meaning for the livelihoods of people. This is a point that has been explored byKanbur (2001). He asks the question “How can people with seemingly the same endsdisagree so much about means, and how can seemingly the same objective reality beinterpreted so differently?” Obviously, the growth of an economy does not necessarilymean the growth in income for most of the people, but should they not ‘feel’ that therehas been growth in the economy? Kanbur (2001) provides another twist to the puzzlewhen he wonders why “people are not dancing in the streets” if the economy has seengrowth in the region of 4%-5.5% for almost two decades.There has always been the view that the economy of Ghana could and should grow faster than it has done. The recent growth record is deemed inadequate for the desiredtransformation of the economy. Ghana in 1993 set itself the target of becoming an upper middle income country by 2020 under its
Vision 2020
programme. To achieve thetargeted
 per capita
income by that year, using a using a simple Harrod-Domar typemodel, it was reckoned that the economy needed to grow at an average of 8% for the period. Since then the economy has not shown a capacity to move towards the target. The performance of the economy and economic growth have been characterised by the non-
 
 2attainment of macroeconomic targets. In particular, whereas the GDP was expected togrow between 7.1% and 8.3% in the period 1996-2000, actual growth was between 4.2%and 5.0%. The significant deviation between targets and the actual was translated intolow
 per capita
GDP growth and poor sectoral growth.We discuss in this chapter the factors behind the measured growth and then explain whythe growth figures lead to questions in the minds of the people. We do this by showingthat most of the growth has been driven by public investments of questionable productivity, the returns on which have been sometimes misallocated. Aryeetey and Tarp(2000) have argued that the growth of the 1980s came about as a result of the expansionof capital application, largely as a consequence of increased aid inflows, which wassimilar to the expansion that occurred in the 1960s financed largely by running downaccumulated reserves from the 1950s. In both cases the increased use of capital was notalways accompanied by significant improvements in total factor productivity, largely because the role that significant economic agents should play alongside the state wasoverlooked, even in periods of reform. In both instances, the injection of capital cameafter long periods of relatively high capital depreciation. Again in both instances, theinitial high growth rates could not be sustained into the medium-term because the policieswere not anchored in appropriate all-embracing development frameworks. The firstattempt sought to deny the market its place while the second attempt was with weakenedstate structures that were unable to deliver outcomes in a timely and adequate manner.The significance of structural change to economic growth may be derived from thefindings that greater flexibility in economic structures led to significant economic growth(Syrquin and Chenery 1986). In the Syrquin and Chenery analysis, the shift of resourcesfrom low-productivity to high-productivity areas was a major source of total factor  productivity growth, even within the same sector. The importance of changing structurein explaining economic growth in Ghana has been underscored by Killick (2000) whouses the above framework to discuss the Ghanaian economy and then observes, “It is nosecret that Ghana’s economy has not grown much since the early 1960s. Indeed it slippedfrom being classified (by the World Bank) as a middle-income country to a low-incomecountry…. If the fit between structural change and economic growth were perfect, the prediction for a non-growing economy would be that the structure would also remainunchanged”. And that is what he found. The absence of structural change is againsuggested by the work of Round and Powell (2000).As we seek to show that slow economic growth for most of the last four decades has beena consequence of the lack of adequate attention to structural change, we will discuss insection 2 the Ghana growth experience in a cross-country perspective, focusing largelyon two clear periods, 1960-1982 and 1983-2000, with details on sub-periods that areassociated with distinct political regimes. In section 3, we focus on the performance of markets, including the markets for inputs and outputs. Section 4 is devoted to an analysisof the role played by different economic agents and how these affected economic growthat different times. In section 5, we discuss the political economy of growth looking at therelative strengths of different groups and how they influenced economic decision-makingand outcomes.

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