The Effects of Barriers to Physical Capital Accumulation on Ghana’s Post-Independence and Future Economic Growth: An Application of the Neoclassical Growth Model

ABSTRACT Ghana’s economy was identical to South Korea’s economy in the 1960s; however, since the 1970s, Ghana’s economy has substantially lagged behind. This article applies the neoclassical growth model to examine the role of barriers to physical capital accumulation in Ghana’s post-1970s economic disaster. While previous studies have estimated the return on physical capital for Ghana’s economy and have acknowledged barriers to its accumulation, no study has yet quantified these barriers or quantitatively assessed their impact on Ghana’s long-run economic growth. This study fills this gap. The calibrated model reveals that physical capital barriers accounted for approximately 10% of the disparity in long-run economic growth between Ghana and South Korea from 1970 to 2014. Using recent macroeconomic data, this study found that reducing physical capital barriers from 0.7 to 0.4 increased Ghana’s real GDP per worker growth rate by approximately 2.7 percentage points from 2020 to 2029 and by 0.82 percentage points from 2030 to 2049. Carrying out counterfactual analysis, this study found that the policy of reducing Ghana’s physical capital barriers seems superior to the policy of raising Ghana’s human capital growth rate by a realistic amount over the short-to-medium term.