Trade Liberalization and Economic Growth in Ghana (1986 – 2007)

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MAY, 2010
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Trade liberalisation is often considered to be conducive for economic growth. In addition to the comparative advantage argument of the classical economists, trade liberalisation enhances competition, promotes large market, transfer of technology and hence efficiency in production. In the light of this, most developing countries have embraced the trade liberalisation policy as part of structural reforms. Ghana has gradually liberalised its trade regime especially after 1986 when the country accepted the World Bank and IMF Structural Adjustment Programme (SAP). The main purpose of the liberalisation policy was to open up the economy to increase competition to improve efficiency in domestic industries so as to enhance economic growth. The study was therefore carried out to find out the impact of the trade liberalisation policy on the GDP growth of Ghana from 1986 – 2007. The study used the Autoregressive Distributed Lag (ARDL) approach to estimate the model specified for the study. The choice of the ARDL approach was mainly due to the smallness of the sample size. In the study, openness (sum of exports and imports to GDP) was used as a measure of liberalisation. Using annual time series data from 1986 – 2007, the study found that trade liberalisation enhances GDP growth in Ghana in the long run but hampers growth in the short run. Capital stock, population growth, and inflation were all found to have positive impacts on GDP growth in both the short run and long run while foreign direct investment was found to have a negative impact on GDP growth. The study recommended that domestic consumers should be encouraged to patronise locally made goods and services. This can be done through the organisation of rural trade fairs and exhibitions to bring made in Ghana goods to the doorsteps of the people. It was also recommended that foreign direct investors should be encouraged to invest in the agriculture and industrial sectors.
A Thesis Submitted to the Department of Economics, Kwame Nkrumah University of Science & Technology, Kumasi In Partial Fulfilment of the Requirements for the Award Of Master of Arts Degree In Economics.