The Political Economy Dimensions of Macroeconomic Management of Aid in Ghana

This paper contributes to the debate on aid effectiveness by looking at the 'how' of aid effectiveness. In other words it provides an assessment of whether aid only filled a financing gap or whether it, in addition, helped influence the political economy in a way that engendered growth. Ghana provides a good case for an assessment of this question as it saw significant aid inflows over the last two and a half decades and also recorded significant growth and poverty reduction. The paper asserts that aid has impacted positively on growth, in part through the creation of an enabling environment for private sector-led growth. It also argues that aid has helped shape macroeconomic management in Ghana, identifying three channels through which aid has supported macroeconomic management. First, aid has supported both physical and social infrastructure and therefore growth. Second, aid has helped reduce fiscal instability by limiting domestic borrowing. Third, it helped shape the general policy direction in Ghana. It concludes by arguing that the aid-induced policy has helped in the operation of a more effective and efficient market system in Ghana today.