Abstract for: Economic Growth Accounting: Policy Analysis of Transitional Dynamics
The GDP growth pattern of Ghana from 1960 to 2000 shows a rollercoaster behavior. Because of this, the Ghanaian population today is almost as poor as it was then. This phenomenon has been studies by several researches all of whom have created important but atomistic insights about this issue. We want to offer a richer explanation. The paper develops an economic growth model to explain the GDP growth pattern in the relevant time frame. We are (1) able to replicate the historical GDP growth, (2) use the model to estimate the contribution of factors of production and labor productivity to economic growth, (3) offer a consistent causal explanation about the growth pattern, and (4) conduct a counterfactual policy analysis offering insights about what could have been possible if different policies would have been executed. In conclusion, the main cause of slow growth in Ghana from 1960-2000 was the declining labor productivity and low physical capital stock. The low physical capital base and lack of innovative production processes of the workforce, is responsible for the poor growth performance. The counterfactual policy analysis puts forth that a policy to encourage investment through increasing propensity to save is most successful.