Commodity prices, exchange rate and economic growth in West Africa: Case study of Cote dIvoire and Ghana

Abstract

Some West African countries have extensive access to natural resources and rely heavily on revenues from the export of these primary commodities. The heavy dependence of Ghana and Cote d’Ivoire on revenues from the exportation of cocoa raises the possibility that these economies are vulnerable to external commodity price fluctuations. This paper seeks to examine the relationship between cocoa prices, exchange rate and economic growth using time series data for the period 1980 to 2011. Using autoregressive distributed lag (ARDL) modelling approach, the study found intriguing results. The study revealed that higher cocoa price reduces long-run economic growth in Ghana but cannot be an important ingredient in short-run growth. In Cote d’Ivoire, it does not play any significant role in both long-run and short-run economic growth. Increases in cocoa exports rather enhance economic growth of the two countries. Appreciation of the Communaute Financiere Africaine (CFA) franc enhances economic growth but that of the Ghana Cedi is only in the short-run. Higher rates of inflation reduce economic growth of Ghana but enhance that of Cote d’Ivoire. Improvements in life expectancy augment economic growth in Ghana but reduce that of Cote d’Ivoire. Key words: Cocoa price, cocoa export, inflation, exchange rate, economic growth.