Bank Competition, Financial Innovations and Economic Growth in Ghana

This paper takes the finance-growth nexus further by looking at the relationship between bank competition, financial innovations and economic growth in Ghana. The paper also aimed at finding the causality among bank competition, financial innovations and economic growth in Ghana. We carried out the research using quarterly data from 1990 to 2009. The relationship between bank competition, financial innovations and economic growth was established through the framework of the endogenous growth model. In addition, we employed the ARDL cointegration procedures to enable us establish both short-run and long-run relationship between bank competition, financial innovations and economic growth. The results showed that, in the long run, bank competition is positively related to economic growth whilst financial innovation is negatively related to economic growth. In the short run, bank competition is negatively related to economic growth. In the same token, financial innovation is positively related to economic growth in the short run. In terms of causality, the results showed that, there is unidirectional Granger causality from bank competition to economic growth. However, there is bidirectional Granger causality between financial innovation and economic growth. The study therefore, recommends for more regulations toward a more competitive banking system with more innovative products tailored toward mobilization of savings and investment to growth induced sectors of the economy