Ghana’s Growth Engine Is Running on More Inputs, Not Greater Efficiency

Ghana's economic expansion has not been consistently supported by improvements in productivity, raising questions about how durable its growth model can be. A study titled Innovation and Productivity as Engines of Economic Growth in Ghana, published in Regional Science and Environmental Economics, examines whether innovation is translating into stronger efficiency and long-term economic performance.

The paper, authored by Hu Xuhua and Ernest Kay Bakpa of Jiangsu University in China and Josephine Adwoa Yeboah of Takoradi Technical University in Ghana, reveals that innovation contributes positively to economic growth, but total factor productivity is the more powerful long-run driver.

Ghana's economic growth has often depended more on capital accumulation, labour expansion, commodity activity and structural change than on sustained efficiency gains. Innovation is present, but its effects are not being embedded deeply enough across the economy.

Innovation Works Through Productivity

Innovation does not raise economic output simply because patents are registered or new technologies are introduced. Its economic value depends on whether businesses can use new knowledge to improve production, reduce waste, develop better products and allocate resources more efficiently.

The study finds a positive and statistically significant long-run relationship between innovation and economic growth. Total factor productivity also has a positive effect, with a larger influence than innovation itself. The result suggests that productivity is the main channel through which innovation contributes to broader economic performance.

Short-term results point to a gradual process. Innovation affects growth both immediately and with a time lag, while productivity improvements take longer to translate into higher output. Such delays are expected when firms need time to acquire technology, train workers, reorganise production and integrate new systems into existing operations.

An error-correction estimate indicates that about 21.4% of short-term deviations from the long-run relationship are corrected within one period. Ghana's economy therefore appears to adjust gradually after shocks affecting innovation, productivity or output rather than returning instantly to its underlying growth path.

Growth Has Relied Too Heavily on More Inputs

Growth accounting provides a less reassuring picture than the positive relationship between innovation and output. Ghana's total factor productivity performance was volatile across the period studied, with episodes of improvement followed by weak or negative contributions.

The strongest productivity gains occurred during the reform period from 1987 to 2001, when liberalisation and institutional changes improved resource allocation and productive efficiency. The momentum did not continue consistently in the years that followed.

After 2007, periods of output expansion increasingly coincided with weak productivity performance. The divergence suggests that Ghana was producing more without always becoming more efficient. Capital accumulation, greater labour utilisation, commodity expansion and structural shifts appear to have played a larger role than sustained technological progress.

Labour productivity also did not always correspond with improvements in total factor productivity. Output per worker can rise because workers have access to more capital or because economic activity shifts toward more productive sectors. Such gains do not necessarily indicate that the economy as a whole is using its resources more efficiently.

Growth driven mainly by additional inputs can support expansion for a period, but its momentum weakens as returns to capital and labour decline. Productivity-led growth is more difficult to build, but it offers a stronger foundation for higher incomes, competitiveness and resilience.

Innovation Is Not Reaching Productive Sectors Fast Enough

The study identifies feedback between economic growth and innovation. Innovation contributes to growth, while expanding economic activity can encourage further innovation by widening markets, improving investment incentives and creating stronger reasons for firms to adopt technology.

Economic growth also contributes to productivity improvements. Innovation has a weaker but positive influence on total factor productivity, indicating that new knowledge and technology can improve efficiency when they are successfully applied.

Productivity improvements alone, however, do not appear to generate consistent increases in innovation. The analysis finds no significant evidence that higher productivity systematically stimulates further innovation in Ghana.

Such a pattern points to structural constraints within the innovation system. Firms may become more efficient without developing the research capacity, financing arrangements or institutional links required to produce new technologies. Universities and research institutions may generate knowledge that does not reach companies, while businesses may lack the skills and capital needed to adapt it.

Patent applications, the study's main proxy for innovation, also provide only a partial picture. Informal adaptation, indigenous knowledge, imitation and incremental improvements are often important sources of innovation in developing economies but may not be captured through formal patent statistics.

The result is a transmission problem. Ghana may have innovative activity, but the connection between ideas, firms, production systems and economy-wide productivity remains weak.

Ghana Needs a Productivity-Centred Growth Strategy

The study's policy implications extend beyond calls for more research and development spending. Ghana needs to strengthen the systems that convert knowledge into productive activity.

Universities, research institutions and businesses should develop deeper partnerships around applied research, technology transfer and firm-level problem solving. Stronger links could help move innovation from academic and experimental settings into manufacturing, agriculture, digital services and other productive sectors.

Human capital development is equally important. Workers and managers need the technical, organisational and problem-solving capabilities required to adopt and improve new technologies. Investment in skills can increase the economy's absorptive capacity, allowing local firms to benefit from both domestic innovation and foreign technology.

Industrial policy should encourage technological upgrading and diversification into higher-value manufacturing and knowledge-intensive services. Such sectors can create stronger opportunities for innovation diffusion and reduce dependence on commodity-driven expansion.

Infrastructure, access to finance, regulatory quality and macroeconomic stability will shape whether these efforts succeed. Innovation cannot scale effectively when firms face unreliable infrastructure, limited credit, weak research support or an uncertain investment environment.

Foreign direct investment should also be judged by its contribution to domestic capabilities rather than by inflow volumes alone. Policies should encourage local supplier linkages, knowledge transfer, workforce development and collaboration with Ghanaian firms.

These priorities are relevant across Sub-Saharan Africa, where many economies have experienced periods of growth without comparable improvements in productivity. A stronger innovation strategy must therefore be connected to structural transformation, skills, finance and institutional reform.

Notably, the study's innovation measure relies mainly on patent applications, which may understate informal and non-patented activity. National annual data can also conceal significant differences between industries, firms and regions.

Total factor productivity is estimated as a residual from a Cobb-Douglas production function. The measure may therefore include errors linked to capital-stock estimates, labour quality and technological change. The analysis also does not explicitly incorporate institutional quality, infrastructure, financial development, governance or digital transformation.

These constraints do not invalidate the study's key findings, but they limit how broadly they can be applied. The results show important national patterns rather than proving that every sector or firm in Ghana follows the same trajectory.

Future research should combine macroeconomic analysis with firm-level and sector-specific evidence. Researchers could examine how businesses adopt technology, whether university partnerships improve productivity and which forms of innovation generate the strongest employment and income effects.

The findings align with Sustainable Development Goal 8 on productive employment and economic growth and SDG 9 on industry, innovation and infrastructure. They also speak to the wider development challenge of ensuring that digital and technological transformation produces broad-based gains rather than isolated improvements.

To sum up, a durable growth strategy will require Ghana to connect research with industry, technology with skills and investment with knowledge transfer. Innovation can support long-term development, but only when the institutions and productive systems around it are strong enough to carry its benefits across the economy.