Import Demand, Dutch Disease and Capital Inflows: The Case of Ghana’s Petroleum Revenue.

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This paper examined the relationship between import demand, capital inflows and Dutch disease in Ghana. In examining this relationship, three models were constructed and the ARDL Bound test for cointegration applied. In the first model, an import demand function for Ghana was estimated: first to find out the impact of agriculture share in GDP (tradable sector contribution to GDP) on imports and second, to show the extent to which windfall inflows affect import demand. In this model, it was found that rising imports cannot be attributed to any Dutch disease effects in Ghana as the coefficient of the Dutch disease variable was not significant. Also, it was established that windfall inflows had significant positive impact on imports. Given this relationship, as well as the inability of Dutch disease to explain increased imports in Ghana, we interpreted this to mean that the increased imports are perhaps of capital and intermediate goods which generate positive externalities to the tradable sectors thereby neutralizing any Dutch disease effects. The second model attempted to find out whether indeed windfall inflows in Ghana have led to exchange rate appreciation as it is the main channel of transmission of the Dutch disease. It was established that windfall inflows proxied by LNFDI did not appreciate the exchange rate and therefore does not cause Dutch disease in Ghana. Finally, the estimated Dutch disease model also suggests that Ghana did not experience any Dutch disease effects as a result of its natural resource boom. Rather declined contribution of tradable agricultural sector to GDP is as a result of economic development theory.
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.