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The Balance of Payments Constraint Growth Model and the Effect of Trade Liberalization on the Trade Balance and Income Growth in Ghana


  • Alexander Bilson Darku

    () (University of Lethbridge)


This paper uses the balance of payment constraint (BPC) growth model and the autoregressive distributed lag approach to cointegration to examine the major determinants of income growth in Ghana, emphasizing the importance of exports, capital inflows and relative prices. The paper also uses the model to identify the effect of trade liberalization on the trade balance and income growth in Ghana. The main empirical results suggest that increases in the growth rates of exports, capital inflows and relative prices lead to an increase in growth of income. However, the liberalization of the external sector has not improved the income growth performance in Ghana. The results from this study questions the idea that trade liberalization leads to improvement in economic welfare of countries by raising the sustainable growth rate.

Suggested Citation

  • Alexander Bilson Darku, 2012. "The Balance of Payments Constraint Growth Model and the Effect of Trade Liberalization on the Trade Balance and Income Growth in Ghana," The African Finance Journal, Africagrowth Institute, vol. 14(1), pages 37-66.
  • Handle: RePEc:afj:journl:v:14:y:2012:i:1:p:37-66

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    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies


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