Export performance on economic growth in Ghana

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Since 1983, Ghana has embraced a policy of trade liberalization as a strategy for growth after more than a decade of unprecedented economic decline. Trade liberalization – according to neoclassical trade theory - would result in reallocation of resources in line with a country’s comparative advantage. This would lead to export-led growth. The objective of this study was to assess the validity of the export-led growth hypothesis for Ghana using annual data from 1980-2009. Though there has been extensive research on the relationship between exports and economic growth, the results is mixed and ambiguous. In this study, some modifications were made to previous methodology used to test for export-led growth hypothesis. Before analyzing the data quantitatively, descriptive analysis was done to identify the relationship among the variables. To avoid a possible specification bias, a vector autoregressive (VAR) model was built in the production function context. Since some variables in the production function are independent variables, bi-variate vector autoregressive model with exogenous variables was developed. The cointegration and causality test results obtained using this model was compared with that of bi-variate vector autoregressive model without exogenous variables. The study found that there exist a positive relationship between export and economic growth in the long-run. Furthermore, the results obtained indicate bidirectional causality between export and economic growth in the long-run and unidirectional causality running from GDP to exports in the short-run. In view of the positive relationship between export performance and economic growth, the study suggested that, attempt should be made to increase export as a way of enhancing GDP growth. To this end, government should assist Ghanaian firms to penetrate international markets by offering fiscal incentives such as reduction in export taxes or offering export subsidies, subsidized loans for exporters as well as training and capacity building to improve the quality and packaging of export products to enhance their competitiveness. In addition, opportunity should be provided (with government assistance) to Ghanaian exporters to participate in international trade fairs to expose “Made in Ghana” products and create new market for Ghanaian goods.
A thesis submitted to the Board of Postgraduate Studies, Kwame Nkrumah University of Science and Technology, Kumasi, in partial fulfilment of the requirements for the award of the Degree of Master of Arts in Economics, 2012