The Dynamism of Trade Balance in Ghana

Abstract

Developing economies have frequently employed macroeconomic factors such as the currency rate, inflation, investment, and so on to manage trade flow; yet, there are often chronic deficits in the balance of trade and payments due to a structural imbalance between the amounts of exports and imports. As most rich countries intentionally used the benefits of international trade to improve their trade balance position, many developing countries signed up for numerous unilateral and multilateral trade policy reforms that provided little to no economic benefit. As a result, this study employs cointegration and an error correction model based on the Autoregressive Distributed Lag (ARDL) framework to analyse and estimate the effect of macroeconomic factors on Ghana's trade balance and how Ghana's trade balance has changed from 2000 to 2018. Quarterly time series data covering a period of 19 years, from 2000 to 2019 was collected on all dependent and independent variables such as exchange rate, inflation rate, interest rate and GDP per capita. The results indicate that exchange rate and interest rate significantly affect trade balance while GDP per capita and inflation insignificantly affect trade balance. The study recommended that the government should put in more measures to stabilise the currency and local manufacturers should be motivated by giving subsidies and tax exceptions.