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The Effects of Exchange Rates on Trade Balance in Ghana

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  • Akorli, Edem

Abstract

This study examines the impact of exchange rates on the trade balance of Ghana. The paper uses macroeconomic indicators such as CPI and GDP in addition to Real Effective Exchange Rate to achieve the objectives of this study. Annual Time Series Data gathered from 1980 – 2016 was used in the analyses. Simple OLS regression was conducted to estimate the long run relationship of the variables on trade balance. The Johansen Cointegration Test and Error Correction Model were used to establish short run relationships. Findings from the study indicate that exchange rate has a negative impact on trade balance in the long run whiles GDP was revealed to impact negatively on the trade balance thus suggesting that an increase in the GDP leads to a deteriorating trade balance. The J-Curve phenomenon was however found to be non-existent in Ghana.

Suggested Citation

  • Akorli, Edem, 2017. "The Effects of Exchange Rates on Trade Balance in Ghana," MPRA Paper 88833, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:88833
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    File URL: https://mpra.ub.uni-muenchen.de/88833/1/MPRA_paper_88833.pdf
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    References listed on IDEAS

    as
    1. Bahmani-Oskooee, Mohsen, 1985. "Devaluation and the J-Curve: Some Evidence from LDCs," The Review of Economics and Statistics, MIT Press, vol. 67(3), pages 500-504, August.
    2. Nii K. Sowa & Ivy K. Acquaye, 1999. "Financial and foreign exchange markets liberalization in Ghana," Journal of International Development, John Wiley & Sons, Ltd., vol. 11(3), pages 385-409.
    3. Krueger, Anne O., 1990. "Perspectives on Trade and Development," University of Chicago Press Economics Books, University of Chicago Press, edition 1, number 9780226454900, September.
    4. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-325, August.
    5. Mr. Tihomir P Stucka, 2004. "The Effects of Exchange Rate Change on the Trade Balance in Croatia," IMF Working Papers 2004/065, International Monetary Fund.
    6. Koch, Paul D & Rosensweig, Jeffrey A, 1990. "The Dynamic Relationship between the Dollar and Components of U.S. Trade," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(3), pages 355-364, July.
    7. Garber, Peter M. & Svensson, Lars E.O., 1995. "The operation and collapse of fixed exchange rate regimes," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 36, pages 1865-1911, Elsevier.
    8. Bahmani-Oskooee, Mohsen & Ratha, Artatrana, 2011. "S-curve dynamics of trade between Sweden and her trading partners," Economic Systems, Elsevier, vol. 35(3), pages 355-362, September.
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    Cited by:

    1. Peter Nuhu & Dramani Bukari, 2021. "An analysis of export, import and exchange rate oscillation in Ghana," International Journal of Economic Policy Studies, Springer, vol. 15(2), pages 301-327, September.

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    More about this item

    Keywords

    GDP; Trade Balance; Exchange Rate; Annual Time Series; Johansen Conintegration; Error Correction Mode; Marshall Lerner Condition; J-Curve;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General

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