n Studies in Economics and Econometrics - Financial liberalization and investment in Ghana : a test of the Mckinnon's complementarity hypothesis

Volume 31, Issue 3
  • ISSN : 0379-6205


This paper tests the McKinnon complementarity hypothesis between money and investment in Ghana in a Vector Error Correction framework. The findings reveal that investment has a positive relationship with money demand, whilst domestic credit positively influences investment, suggesting complementarity between money and investment. However interest rate does not significantly influence money demand. In the short-run, though the interest rate has a positive relationship with investment it negatively influences money demand contrary to the McKinnon postulations. Hence the relationship between money and investment could not be attributed to a savings effect from an increase in money balances and interest rate liberalization.

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