This chapter analyzes the long-run relationships between Ghana's trade balance and real domestic and foreign income, real money supply, interest rates and the exchange rate, using annual data for the period 1970-2002. the key findings are summarized. First, the most recent techniques for unit root and co-integration testing were employed to investigate the stationary of the series. The results indicate that the trade balance and the key determinants are non-stationary in levels. Secondly, the Johansen MLE multivariate co-integration procedure reveals that Ghana's trade balance and the key determinantcare co-integrated, and thus share a long-run equilibrium relationship. Thirdly, the Stock-Watson dynamic OLS (DOLS) modelling, which is superior to a number of alternative estimators finds that the key determinants of Ghana's trade balance are real domestic and foreign income, domestic and foreign interest rates, the nominal exchange rate, and real foreign money supply. Fourthly, the results of this study indicate that devaluation of the Ghanaian cedi worsens the trade balance in the long run. To sum up, the information provided in this study is particularly useful for policymakers who want to anticipate future changes in the trade balance in response to devaluation of the Ghanaian cedi and other monetary variables.
The Economy of Ghana: Analytical Perspectives on Stability, Growth & Poverty p. 111-131