Abstract
Cocoa unrelentingly is a valuable crop and key foreign exchange earner in Ghana regarding other agricultural commodity exports. The focal drive of this study was to examine the impact of macroeconomic variables including cocoa price and bank specific characteristics on bank profitability during the period of 2010 to 2020. The study extends the analysis of cointegration, Vector Error Correction Model (VECM) with that of impulse response and provided a vigorous long run and short run dynamic effects on bank profitability. The study confirmed a negative relationship between coca price and bank profitability in the short run. The estimated error correction term shows convergence of banking sector profitability towards long-run equilibrium. The causality test results indicated that there is a unidirectional relationship running from cocoa price to Bank profitability. Thus, cocoa prices have a significant effect on bank profitability. The results raise issues for counter-cyclical policies, such as revenue and stabilization funds during cocoa price boom. Policy makers may thoughtfully consider the significance of cocoa price when framing policy regarding bank profitability among others. Key words: Cocoa price, bank profitability, Vector Error Correction Model (VECM), impulse response, causality.
Highlights
Cocoa is a vital crop because it provides food, income, employment, industrial raw material and resources for the Ghanaian economy
The study results found that non-interest income, Gross Domestic Product (GDP) growth and capital to assets significantly influence bank profitability
The independent variables were in two categories: Bank-Specific variables and Macro-economic variables including cocoa price used in determining the bank profitability in Ghana (Table 1)
Summary
Cocoa is a vital crop because it provides food, income, employment, industrial raw material and resources for the Ghanaian economy. The crop leads the agricultural sector and contributes about 30% of the country's export earnings. Agarwal et al (2017) showed that low prices of commodity are due to worse bank health, which results in tightening of bank lending in Low-Income Countries. This worsening association is stronger for commodityexporting economies. A price regulation policy, known as the price stabilization mechanisms, has been established by Côte d‘Ivoire and Ghana. This allows farmers to be assured about the price
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