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Development Economics

Inflation, public debt and unemployment nexus in Ghana. An ARDL analysis

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Article: 2345296 | Received 21 Nov 2023, Accepted 13 Apr 2024, Published online: 03 May 2024
 

Abstract

In recent years Ghana is challenged with rising debt, surging inflation, and unfavorable unemployment rates. To mitigate their impact on economic prosperity the country requires strategic policy interventions. Using data from 1990 to 2022, this study attempts to analyze the relationship between inflation, public debt, and unemployment in Ghana. The ARDL framework was used to estimate the variables. A long-run relationship between public debt and inflation was established. Notably, inflation correlates negatively with public debt in both short and long -run. Whiles public debt demonstrated a positive correlation with unemployment in both short and long-run, remittances displayed a negative long-run correlation with unemployment. The study suggests that prioritizing domestic debts over foreign debts could be strategic to hedge against inflationary risk. Moreover, we recommend a targeted investment in infrastructure projects and the promotion of agriculture. These initiatives will spur economic growth, engender sustainable development and ultimately create more job opportunities.

Impact statement

This study examines the relationship between inflation, public debt, and unemployment in Ghana and provides insightful information that is important for academic discourse as well as policy formulation. Using the Autoregressive Distributed Lag (ARDL) framework and data from 1990 to 2022, the study uncovers significant findings. First of all, it proves that there is a long run negative correlation between public debt and inflation, emphasizing the need for prudent debt management measures. Notably, the preference for local debt over borrowing from external sources appears to be a possible hedge against inflationary risks. Secondly, the analysis reveals a positive long run relationship between unemployment and public debt, highlighting the significance of sustainable economic growth measures to counteract this relationship. To achieve this, it is suggested that targeted investments in infrastructure is required in key sectors like agriculture and manufacturing to stimulate economic growth and create employment opportunities.

Furthermore, the study emphasizes how crucial it is to improve the trade balance by promoting exports. The effective use of trade can reduce the burden of public debt and promote prosperity. The Ghanaian government is encouraged by these findings to prioritize domestic borrowing and take into account fixed interest rate loans, or loans denominated in local currency in managing the public debt. In the realm of academic literature, the study enriches the discourse regarding the macroeconomic dynamics of developing economies, with a focus on Sub-Saharan Africa. The research provides empirical evidence to support the current debate on debt management, inflation control employment generation. The study significantly lays the foundation for future studies and the development of public policies that promote economic stability and prosperity.

Data availability statement

The data is available upon request.

Data source

Data source was WDI (World Development Indicators) maintained by the World Bank. The data we used for this study covered the period 1990–2022.The WDI database covers a wide range of data on macroeconomic variables which includes inflation, unemployment etc. Interms of data size, the WDI database covers a vast amount of data on hundreds of countries over several decades. This data source by the World Bank is publicly and freely accessible through the World Bank’s website (data.worlbank.org). WDI data base is free and can be accessed and used by any one especially for non-commercial purposes. Therefore, WDI is an open access data base and users do not necessarily require any rights and permission to use it.

Disclosure statement

We, the authors of the manuscript titled “Inflation, Public Debt, and Unemployment Nexus in Ghana: An ARDL Analysis,” hereby declare that we have no relevant financial or non-financial competing interests that could be perceived as influencing the objectivity, integrity, or publication of this paper. We confirm that this research was conducted with utmost objectivity, and the findings and conclusions presented in the manuscript are based on our unbiased interpretation of the data.

Additional information

Notes on contributors

Mohammed Ridwan Saani

Mr. Mohammed Ridwan Saani is currently a PhD candidate in PhD economics in the University of Cape coast, Ghana. A Lecturer with economics department, University For Development Studies, Tamale Ghana. His research interest is in the area of development economics, labour economics and financial economics.

Abdul-Malik Abdulai

Dr. Abdulai Abdul-Malik, has a PhD in Migration Studies, University of Ghana. A Senior lecturer in the economics department, University For Development Studies, Tamale, Ghana. His research interest is in economics and migration studies.

Mubarik Salifu

Salifu Mubarik is currently a PhD candidate in economics in the University of CapeCoast. He is a lecturer in the economics department, University For Development Studies. His research interest is in the area of monetary economics, development economics and health economics.