An empirical analysis of the determinants of trade balance in post-liberalisation Ghana
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Date
MAY, 2016
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Abstract
The study investigates the determinants of trade balance in post-liberalisation Ghana. The
Autoregressive Distributed Lag Bounds test approach to cointegration was used for the
estimation. Further, the study employed the variance decomposition and impulse response
functions to investigate the dynamic simulations of the variables included in the estimated
model. The results show evidence of an equilibrium long-run relationship (cointegration)
between trade balance, exchange rate, household consumption expenditure, government
consumption expenditure, money supply, foreign income, domestic prices and agricultural
growth rate. The study finds that in the long-run increasing levels of household
consumption expenditure, government consumption expenditure, money supply, and
domestic prices worsens Ghana‟s trade balance whilst foreign income improves it.
Exchange rate and agricultural growth rate were insignificant in the long-run. The short-run
result also shows that exchange rate, household consumption expenditure, government
consumption expenditure and money supply cause a decline in Ghana‟s trade balance.
Foreign income, agricultural growth rate and domestic prices were insignificant in the
short-run. The long-run and short-run effects of exchange rate on the trade balance show
the absence of the Marshall-Lerner condition and the J-curve effect. Further the variance
decomposition results show that innovations in household consumption expenditure highly
contributed to the forecast error of Ghana‟s trade balance compared to other explanatory
variables. The findings and recommendations of the study provide vital information for
trade policy reforms
Description
A thesis submitted to the Department of Economics, Kwame Nkrumah University of Science and Technology, in partial fulfillment of the requirements for the degree of Master of Philosophy (Economics).