An Empirical Assessment of the Nexus between Sectoral Structure, Inflation, Exchange Rate and Economic Growth in Ghana

Abstract

The study examined the relationship between inflation and exchange rates in Ghana, the sectoral structure of the economy of Ghana and also explored how this structure influences economic growth when inflation and exchange rates are under consideration. The study gathered data over the sampled period of 1980- to 2019 and used appropriate techniques to test for unit roots and co-integration in the data. After applying the appropriate regression techniques results obtained, it was identified that there was a negative relationship between inflation and exchange rates in Ghana from 1980- to 2019. Also, results obtained from the descriptive analysis and correlation results showed that the current structure of the economy was dominated by services value-added, followed by industry value added and then agriculture value-added. Finally, results showed different impacts of interactions between inflation and sectoral structure on economic growth in Ghana, as compared to the interactions between exchange rates and sectoral structure in Ghana. The study concluded that the structure of the economy of Ghana has also evolved—from one dominated by agriculture value added to one that is now dominated by services value-added. This change in the structure has resulted from changes in economic policies and the adoption of liberalization policies that have allowed for more trade and free markets. It was recommended that the real issue for policymakers should not be how to control inflation or the exchange rate. Instead, policymakers should focus on how to structure the economy of Ghana to take advantage of the dynamics of the global marketplace and reduce the influence of the exchange rate on the economy of Ghana. Also, there is a need for more public education on the importance of consuming and patronizing locally manufactured goods and services.