Since no elasticity values (MDG or otherwise) are available for Ghana and their estimation is problematic due to data constraints, the values of key model elasticities have been borrowed from other relevant studies (e.g., the default elasticities of the IFPRI standard model as well as the MDG elasticities from Diaz-Bonilla and Lofgren (2005) for Ethiopia). Although this introduces a certain degree of imprecision in the model results, we believe this approach is justified for two main reasons. First, our elasticity values are within a reasonable range as established in the existing CGE literature. Second, the conclusions of this study are not meant to be taken as definitive statements about the resource scale-up requirements to reach the MDGs in Ghana; indeed, the resulting estimates should be viewed as illustrative, providing a range of likely resource requirements. But the main purpose here is to highlight the relative importance of various determinants of MDG outcomes and, within a consistent economy-wide framework, discuss the relative merits of various sources of financing and the implications of a targeted pursuit of MDGs on the rest of the economy. Thus, while the exact quantitative findings of this study may be subject to revision if better elasticity estimates become available, the qualitative conclusions should remain applicable.<sup>8</sup>

# **3. Growth and MDG performance**

The recent robust growth performance of the Ghanaian economy has led to an accelerated pace of poverty reduction. The annual pace of real GDP growth has increased steadily from 3.7 percent in 2000 to 6.2 percent in 2006, despite high oil prices. This strong performance reflects the improved macroeconomic and financial stability, which removed two of the key constraints to private sector growth (Ghana Joint Assistance Strategy, 2007). Moreover, recent growth has been strongly poverty reducing, with the proportion of the population in poverty declining significantly from about 52 percent in 1990 to less than 31 percent in 2004 (Table 3) and then, according to the latest GLSS-5 data, to just 28.5% in 2005/6. This record of growth and poverty reduction underscores the primacy of growth in reducing poverty in Ghana and, therefore, the criticality of progrowth policy environment.

However, despite the impressive progress on the poverty MDG noted above, sharing of growth benefits and improvements in other Millennium Development Goals (MDGs) have been more limited. Although important strides have been made in many areas of human development, until now the progress on education, health, and water/sanitation MDGs has been moderate (Table 3). Precise assessment of progress here is difficult due to data limitations and scarcity as well as multi-dimensional nature of 8 For example, the Armington and CET elasticities of the model—1.2 and 1.5, respectively, for agriculture, 0.9 and 1.2 for manufacturing, and 0.7 and 1.1 for services—are well within the range presented in a review of literature by Annabi et al (2006). Doubling these elasticities lowers the resource requirements for MDG achievement in US$ by less than 5 percent, while the difference in resource requirements as a percent of GDP is negligible. Doubling the elasticity of GDP growth with respect to changes in the infrastructure capital stock (default 0.292 for water and sanitation and 0.288 for other infrastructure) lowers the ratio of resource requirements to GDP in 2015 from 10.9 percent to 10.5 percent, while having almost no impact on the required amount in US$. The impact of changing MDG-related elasticities—the values of which are much more uncertain than trade and production elasticities—is more pronounced, but still within reasonable bounds. Thus, doubling the elasticity of MDG outcomes with respect to the provision of public infrastructure (default 0.10) _and_ doubling the elasticity of MDG outcomes with respect to growth in private consumption (default 0.10) lowers the US$ costs of MDG achievement by around 17 percent.

8