Ghana’s Growth Puzzle: Why More Innovation Must Deliver Better Productivity

The researchers examined real gross domestic product, patent applications from residents and non-residents, and total factor productivity, or TFP, which estimates the portion of output that cannot be explained by measured capital and labour inputs.

Ghana's economy can grow by using more workers, money and materials, but lasting progress depends on finding better ways to use those resources to produce goods and services. The study 'Innovation and Productivity as Engines of Economic Growth in Ghana,' published in Regional Science and Environmental Economics, explores this challenge using annual data from 1965 to 2021.

Researchers Hu Xuhua, Ernest Kay Bakpa and Josephine Adwoa Yeboah find that innovation is positively linked to economic growth, with productivity playing a central role in making those benefits last, even as Ghana's historical record reveals uneven efficiency gains.

What Nearly Six Decades of Data Reveal

The researchers examined real gross domestic product, patent applications from residents and non-residents, and total factor productivity, or TFP, which estimates the portion of output that cannot be explained by measured capital and labour inputs. This measure can reflect technological progress, better organisation and more effective resource use, though it can also capture measurement errors.

Drawing on World Bank and Ghana Statistical Service data, the team combined growth accounting with statistical models designed to examine relationships over time, delayed responses and possible feedback between variables. Patent applications served as an indicator of innovative activity, giving the researchers a consistent measure across the study period while leaving some everyday business improvements outside the analysis. Their central question concerned whether innovation supports growth through productivity gains and whether a growing, more productive economy encourages further innovation.

Innovation Supports Growth, but Its Benefits Take Time

The main model identified a stable long-term relationship linking innovation, productivity and economic output, with both innovation and TFP showing positive associations with growth. The researchers interpret productivity as the main route through which innovation strengthens economic performance, because new ideas become economically valuable when firms use them to improve production, reduce inefficiencies or make better use of workers and equipment. Having more innovative activity does not automatically mean those improvements are spreading throughout the economy.

The short-term results showed that innovation was associated with higher growth both immediately and after a delay, but productivity improvements showed a good relationship with output only in their lagged form. The model estimated that around 21.4% of a departure from the long-term relationship was corrected each year, suggesting gradual adjustment following disruptions. Reported diagnostic and stability checks broadly supported the main model, including checks using alternative lag arrangements.

Tests of predictive relationships suggested that innovation and economic growth reinforced each other, while growth and productivity also displayed feedback. Evidence that innovation predicted productivity was weaker, falling just outside the conventional 5% threshold, and productivity did not predict innovation. These tests concern whether past movements help predict later changes; they do not establish cause and effect on their own, making the findings more qualified than a simple claim that innovation always produces efficiency gains.

Rising Output Has Often Outpaced Efficiency Gains

Ghana's growth accounting results show why the distinction between expansion and efficiency deserves attention, with productivity contributions fluctuating widely over the years. The researchers describe weak performance during 1977–1986, a period associated with economic instability and structural disruption, followed by stronger improvements during the 1987–2001 reform period. Those gains were not consistently sustained, leaving periods of growing output alongside weak or declining productivity.

The years after 2007 revealed economic growth again depended heavily on more investment, more workers and increased commodity production, while improvements in efficiency remained limited. Output per worker sometimes improved even when TFP remained weak, a pattern that can occur when workers have more equipment available without broader advances in technology or organisation. Expansion built mainly on adding inputs can become harder to sustain as the gains from further investment diminish.

A separate set of models examining productivity directly produced mixed, mostly negative estimates for the innovation variable, revealing an important tension within the findings. The authors interpret these results as evidence that innovative activity is not consistently converted into productivity gains, pointing to weak connections between research and industry, limited financing and shortages of relevant skills as possible explanations. Past productivity was also strongly associated with current performance, suggesting that existing economic structures and capabilities change slowly.

Turning New Ideas Into Lasting Economic Progress

The study calls for innovation policies that help businesses adopt and use technology effectively, with greater support for improvements in production processes, research capabilities and cooperation between universities and industry. Education and practical skills matter because firms need people who can understand, adapt and maintain new technologies, while reliable infrastructure, digital connectivity and access to finance help businesses put those capabilities to work. The authors encourage expansion into higher-value manufacturing and knowledge-intensive services, where technological learning can support wider productivity gains.

Trade openness and macroeconomic stability feature in the recommendations, as do foreign investment policies that strengthen links with domestic businesses and encourage knowledge transfer. The paper places Ghana's experience within a wider discussion of uneven productivity growth in Sub-Saharan Africa, using comparisons with economies such as Mauritius and South Africa to underline the importance of skills, institutions and stronger innovation systems. These comparisons provide context rather than results from a new cross-country analysis.