The Welfare Impact of Household Loans: An Analysis for Ghana

Grace Araba Arthur¹ and Danny Turkson^2,

¹Economics Department, University of Ghana, Accra, Ghana

²Economics Department, University of North Carolina at Greensboro, Greensboro, USA

Cite this paper:
Grace Araba Arthur and Danny Turkson. The Welfare Impact of Household Loans: An Analysis for Ghana. Journal of Finance and Economics. 2021; 9(2):83-92. doi: 10.12691/jfe-9-2-6

Abstract

In recent times, household loans, which is a tool for development for most households have gained much importance especially in developing countries. This can be attributed to the fact that they are likely to have a significant impact on the welfare of the households. This study provides evidence on the impact of household loans on the welfare of households in Ghana. The study also examines the factors that influence the probability that households will have access to loans. Data for the empirical analysis are obtained from the sixth round of the Ghana Living Standards Survey (GLSS6). The study employs the Heckman probit, a probit model with sample selection, to determine the factors that influence the probability that households will be granted loans. The analysis reveals that 90.6% of the total household heads who applied for loans were granted and determinants such as marital status (previously in a union) and educational level (tertiary level) of the household head influence the probability that loans will be granted to households. The propensity score matching (PSM) technique is used to analyse the impact of household loans on household welfare. The analysis shows that household loans have a positive and significant impact on household welfare.

Keywords:
household loans welfare propensity score matching heckman probit well-being

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