An empirical investigation into the export-led growh hypothesis in Ghana
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Date
2015-04-14
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Abstract
The export-led growth hypothesis (ELGH) postulates that export growth is one of the
key determinants of economic growth. This study goes beyond the traditional neoclassical theory of production by estimating an augmented Cobb Douglas
production function in a multivariate format. The inclusion of exports and other
variables as inputs provide an alternative procedure to capture total factor productivity
(TFP) growth. The study tests the hypothesis by analysing the case of Ghana, using
annual data for the period 1960-2007. Using Johansen‟s procedure to test for
cointegration, it goes beyond the traditional time series studies by examining
empirically the short-term as well as the long-run relationship.
The study finds that the ELGH does not hold for Ghana due to the nature of export
products; however, the empirical results show that capital formation (investment),
labour force and political stability mainly drove Ghana‟s overall economic
performance from 1960 onwards. From the review of the literature it was found that
the empirical evidence regarding the relationship between exports and growth is not
robust for almost all developing countries particularly for Ghana as confirmed by the
results of this study, and that exports do not have positive effect on the overall rate of
economic growth and could not be considered an “engine of growth” as the ELGH
advocates, their impact was quantitatively negative, in both the short and the long-run
regressions.
The granger-causality test rather revealed a unidirectional causality running from
GDP to exports but not vice versa. The evidence presented clearly supports the
neoclassical theory of production but, to a larger extent, not the so-called new-
vi
fashioned economic wisdom (ELGH). Moreover, it challenges the empirical literature
regarding the ELGH and expresses serious doubts with regard to promoting exports as
a comprehensive development strategy for Ghana. The ELGH is probably beneficial
only for a limited number of developing countries, and only to a certain extent but not
for Ghana.
However, among other things the following recommendations have been made for
Ghana.
More resources should be committed into the empirical studies of growth
determinants particularly issues of export expansion and development to ascertain the
findings of the present study. There has not been much research in the areas of export
expansion and real GDP growth based on time series analysis (The export-led growth
hypothesis). More importantly, effort should be on the diversification strategy to
swiftly shift from the primary exports to manufactured and service sectors of Ghana‟s
export base. This will help enhance Ghana‟s export performance against the major
trading partners whose exports are more valuable and weightier than Ghana whose
exports are mainly primary with downward trend fluctuating prices.
The negative contribution of export variable in the short run and the long run growth
equations indicate a possible gloomy future for Ghana‟s liberalization polices („‟open
border‟‟ policies). Thus, liberalization or exports for that matter will only be growth
enhancing when the primary products (raw goods) which form the bulk of Ghana‟s
exports base is refined and develop the manufacturing and services sector so well to
make them more competitive with stable international prices like our trading
partners.
Description
A thesis submitted to the Department of Economics,
Kwame Nkrumah University of Science and Technology in
partial fulfillment of the requirement for the degree of
Master of Philosophy in Economics