College of Humanities & Social Sciences

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Browsing College of Humanities & Social Sciences by Author "Abdul, Hamid Hamdu"

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    Determinants of Real Exchange Rate in Ghana
    (2013-04-12) Abdul, Hamid Hamdu
    The paper analysed the determinants of real exchange rate in Ghana (1980-2010).The problem statement of the study was that, maintenance of a stable value for the Ghanaian cedi against the US doller continued to pose serious challenges to policy makers in Ghana, for instance the real exchange rate depreciated against the USD by 4.5% in 2003 , 2.2% in 2004, 0.9% in 2005, 1.1% in 2006 and 4.8% in 2007 (Bawumia, 2010) and the Ghanaian cedi experiencing a ‘free fall’’ recently, it became very important for a study to be conducted to re-examine what really goes in to the real exchange rate determination in Ghana. The study adopted a typical developing country model develop by Edwards (1989) as well as time series analysis and employed Autoregressive Distributed Lag (ARDL) approach to estimate the model specified for the study. The empirical results of the study suggested that in the long-run real exchange rate determinants were; terms of trade, openness, and the rate of growth. All these variables maintained their sign as good determinants of real exchange rate except OPENNESS that was not consistent in the short run. Investment as percentage of GDP was not significant in the long run but was significant in the short run whilst Election year (POL) had a depreciation effect on Real exchange rate but wasn’t significant determinant. Finally improvement in terms of trade had a depreciation effect on real exchange for both long run and short run. The recommended that, export promotion should be highly encouraged as part of the trade liberalization policy. In addition, there should also be diversification of our exports. This can be done by adding value to our exports so that they attract competitive prices on the world market. Domestic consumers should also be encouraged to use domestic goods and services. This can be achieved through the organization of rural trade fairs and exhibitions at the district level to showcase made in Ghana goods and this would help reduce domestic expenditure on imported goods so as to ensure favourable balance of trade, thereby, resulting to an appreciation of the real exchange rate in Ghana.