A REGRESSION ANALYSIS OF NATIONAL INCOME AND EXPENDITURE IN GHANA (1980- 2015)

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

National income is the total of the money value of all the commodities and services produced in a country within a particular period of time usually one year. The question of national income and expenditure could come to mind at this juncture. When economy grows the amount of goods and services produced by an economy increases.  If it does not increase yearly, it is not growing, even if it is growing, the rate of growth may not be uniform among years.  Therefore it may not be possible to determine the condition of the economy. In any case, an economy needs an indicator for measuring economy growth, this indicator is the monetary summation at all the commodities and service produced in an economy within a particular period of time usually a year. To get national income of a country like Ghana for instance, we take the list of the goods and services produced in the country during the year, assign values to them and add up.  If we can do this year after year, we shall be able to make comparison of activities of Nigeria year after year.  Then we can decisively determine whether the economy of Nigeria is growing, declining or stagnant.  It is growing if the National income increases year after year, declining, if the National income is decreasing and stagnant it there is no difference in the National Income for years. In measuring National Income, an indicator called Gross Domestic Product (GDP) is used at current price.  It is therefore quite important here to point out the role that prices could play in the measurement of National Income. Prices of goods and services changes from time to time and these changes can affect any attempted estimates.  Considerably, therefore to get an idea of the real physical change in National Income from year to year, effect of price changes must be removed. National Income should be measured in real terms and allow for changes in price levels.  For instance, whenever the economy experiences inflation, price rises while the quantities of goods and services may remain constant.  Let us say that 2000, the total units of the goods and services realized in Ghana amounted to 50,000 units and also 50,000 units in 2001.  Let us further assume that the average per unit in 2000 was N10.00 while the price in 2001 was N15, 000. Ghana’s income with GDP as an indicator for 2000 was 50,000 units X N10.00 = N5, 000,000 Ghana’s income with GDP as an indicator for 2001 was 50,000 units X N15.00 = N750, 000. If the two figures were presented to a layman as final products of overall estimates for 2000 and 2001, he would be tempted to say that the National income for 2001 was higher than that of 2000. This is so monetarily but really the incomes for both years are equal.  The difference in value was due to rise in price in 2001 while the quantities of goods and services were the same in both years. The same thing can be applicable when a country experience deflation or depression.  Therefore in measuring national income for different years using gross domestic product as an indicator effects of price changes must be given the normal due.  In so doing the changes in economy can be determined appropriately.

1.2 STATEMENT OF PROBLEM

Ghana over the years has made significant efforts to reduce poverty, increase income and provide greater access to education and health services to its citizens. The central government has increased its expenditure size by absorbing school fees in all basic schools in the northern part of the country and building new classroom blocks, implementing the National Health Insurance Scheme (NHIS), the implementation of the Livelihood Empowerment Against Poverty (LEAP), and construction of major roads etc; all with the intention of fostering economic growth and development in Ghana. According to the Republic of Ghana joint review of public expenditures and financial management (2011), “ in the year 2010, Ghana was on track to meet poverty, nutrition, school, gender parity and safer water related Millennium Development Goals, while recording accelerated progress in terms of child mortality since 2003”. Such progress wouldn’t have been possible without any rapid fiscal expansion. Over the years, particularly after the implementation of the single spine salary structure for government workers, there has been a sharp rise in the recurrent component of government expenditure thereby spear heading an overall rise in total government expenditures depicted. As a result of poor economic condition in Ghana relevant information is of great interest to me for investigation if viable economic solution can be revealed. Ghana considered as one of the third world countries is been assessed by their income yearly.  It is a simple logic of our living that it country’s income is high with considerable population; the enjoyment of the citizens of that country would be high, while the enjoyment is low with low national income.  It is on this point that it’s very expedient to analyze the national income of Ghana and make necessary recommendation for the improvement of the economy for the betterment of the citizenry.

1.3 AIMS OF THE STUDY

The major purpose of this study is to examine national income and expenditure in Ghana. Other general objectives of the study are:

1. To examine the influence of government expenditure on economic growth in Ghana.
2. To examine National income and National expenditure in Ghana.
3. To examine the effects of government expenditure on economic growth in Ghana.
4. To examine the growth of National income in Ghana.
5. To examine the relationship between National income and national expenditure in Ghana.
6. To recommend policies that can help regulate governments spending in Ghana.

1.4 RESEARCH QUESTIONS

1. What are the influences of government expenditure on economic growth in Ghana?
2. What is National income and National expenditure in Ghana?
3. What are the effects of government expenditure on economic growth in Ghana?
4. How is the growth of National income in Ghana?
5. What is the relationship between National income and national expenditure in Ghana?
6. What are the recommended policies that can help regulate governments spending in Ghana?

1.5 RESEARCH HYPOTHESIS

H0: There is no significant relationship between national income and national expenditure.

H1: There is a significant relationship between national income and national expenditure.

1.6 SIGNIFICANCE OF THE STUDY

The significance of the study is embedded in the notion that suitable government expenditure and policies are critical to economic growth for Ghana. The circumstances regarding public spending and income are topics of considerable debate in both developed and developing economies. However, policies have been less successful as far as Ghana is concerned despite the assumed important roles it plays in promoting economic growth. The present study therefore seeks to contribute to existing studies on the matter from a Ghanaian focused empirical effort. The study is also intended to help policy makers design growth-oriented programmes and carry out fiscal changes that are growth enhancing. Hence, the need for this type of knowledge in decision making assumes great importance, as one of government's recent priorities is to encourage and promote a sustainable level of growth. The study is also intended to help explain Ghana’s earlier fiscal experience and to see what lessons could be drawn from previous economic performances.

1.7    SCOPE OF THE STUDY 

The study is based on a regression analysis of national income and expenditure (1980-2016).

1.8 LIMITATION OF STUDY

Financial constraint- Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

Time constraint- The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

1.8 DEFINITION OF TERMS

National Income: It refers to the money value of all the goods and services produced in a country during a financial year. In other words, the final outcome of all the economic activities of the nation during a period of one year, valued in terms of money. Gross domestic product (GDP) measures the value of all final goods produced within a nation's borders. Gross national product (GNP), the other common measure, counts all income accruing to factors of production owned by a nation's citizens. The value of all final output equals the sum of all factor payments. 

 National Expenditure:  Total level of expenditure in a national economy, equivalent to its total level of output and total level of income.