Mobilizing domestic resources for economic development:the role of Commercial Banks in Ghana

Abstract

The purpose of the research was to find out the factors that affect financial resource mobilization (savings) and investment processes in Ghana. After a long period of liberalization in the financial and other sectors in the economy, GDS is still not sufficient to propel the country into taking up its investment prospects. Credit to the private sector is deemed important in this case to provide finance to businesses including small and medium scale enterprises.

The study reviewed both theoretical and empirical literature. Data from documented sources was collected and appropriate tests were conducted. The objectives of the study were to find out whether interest rate (Mckinnon-Shaw hypothesis) positively affects financial savings and private investment ratio in Ghana, and whether complementarity exists between financial savings and private investment ratio in Ghana. The results reveal that the main determinants of financial savings in Ghana are real deposit rate and real income. Contrary to the Mckinnon-Shaw hypothesis, real deposit rate is found to be negatively related to financial savings while real income is positively associated with financial savings in Ghana. However, the impact of private investment ratio on financial savings was negative but insignificant. The main determinants of private investment ratio were real exchange rate, credit to the private sector and public sector investment. It was found that although real deposit rate was negative private investment ratio in Ghana, the coefficient was not significant.

The recommended policies are that commercial banks should implement more attractive instruments and products, ease the rigidities associated with accessibility of funds in order to draw small savers, and direct more credit to the private sector. The government should also promote policies that will boost productivity and increase income, devalue the domestic currency and restrain from carrying out major investments in the country.