An analysis of the determinants of exports of Ghanaian manufacturers

The instability of export earnings necessitated the establishment of the export promotion council in 1969. There have been many trade regimes until the current liberalized trade and investment regime. After the economic recovery programme (ERP) in 1983, reforms were geared towards stimulating the manufactured exports sector. There is ample evidence that unfavourable terms of trade for primary products and their declining shares of world trade are principal contributors to the abysmal performance of the external sector. This has led the country into a number of macroeconomic imbalances including budget deficits and balance of payments disequilibria. The main objective of the study is to present an analysis of the determinants of exports of Ghanaian manufactures. This entailed assessing empirically the major determinants of exports of Ghanaian manufactures and examining the influence of non-price factors on manufactured exports. Some recommendations for economic policy were enumerated. The overall hypothesis put forward was that there exists a functional relationship between manufactured exports and some macroeconomic variables, notably; income, exchange rate, domestic price level and domestic capacity utilization. The rest are price of exports and lagged export values. The research analyses and investigates the determinants of Ghanaian manufactured exports for the period 1970 to 2000. Broadly, manufactured exports considered were: basic metals, handicraft items and sea foods. The rest are foods and beverages and wood products. A model is formulated based on the imperfect substitutes model where exports are not perfect substitutes for domestic products in the importing country. On the supply-side, the model includes as explanatory variables; price, consumer price index, capacity utilisation and a one year lag manufactured export value. A distributed lagged scheme was employed in the estimation. On the demand-side, the small country assumption is invoked where Ghana is able to sell all its exports at the prevailing world market price. The explanatory variables used are income and average nominal exchange rate. Ordinary Least Squares (OLS) method was used to estimate the demand and supply functions. Data for the estimation was obtained from Quarterly Digest of Statistics, CEPA and Ghana Export Promotion council. Also, some information was obtained from the Ministry of Trade and Industry, World Bank Data Tables and United Nations Statistical Year Books. The results obtained were favourable to the existence of relations between the explained and the explanatory variables. On the demand side, all variables were statistically significant with a high R2 and correct signs consistent with economic behaviour. The parameters of the supply equation also had the expected signs and a high R2 value. However, not all the parameter estimates were statistically significant. These were the constant term and the domestic capacity utilization variable. Nevertheless, the statistically insignificant parameters do not suggest the absence of causal relationships between them and the dependent variable.

Source: KNUST