Effects of Financial Liberalization on the Productivity Growth of Agriculture Sector in the Presence of Structural Breaks: Evidence from Ghana

Abstract

The study examined the relationship between financial liberalization and productivity growth of the Agriculture Sector in Ghana using the annual (yearly) data over the period 1970-2013. In the econometric analysis, the credits provided to private sector, investment, trade liberalization and capital account openness are considered as financial liberalization index while sector level value added as a percentage of GDP represented productivity growth. The stationarity of the series and the long run relationship were analyzed using Zivot-Andrews (1992) and Clemente, Montanes and Reyes (1998) test and Gregory Hansen tests in which structural breaks are considered. The findings of the study revealed that, opening up the economy will yield a positive result of sustainable productivity growth at sector levels. It behooves on the government to ensure that any structural reform programs that are initiated is comprehensively and completely implemented and also accompanied by sound macroeconomic policies to maintained a lasting effect, because  the effect of such structural reforms  in the long run growth path are prone to be thrown out of gear by other external shocks. The favorable influence of financial liberalization on productivity growth of agriculture sector is confirmed in Ghana. Future studies could be focused on whether financial liberalization will yield the expected effect on agriculture and other economic sectors’ productivity growth using primary data from the various sectors of the economy in a survey study.