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Full Project – Impact of institutions on international trade in Ghana

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CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Over the past decades, one of the objectives of policy makers in Ghana has been the maintenance of economic stability that supports the growth of her economy. Ghana economic strategy since 1992 has focused on macroeconomic stabilization and structural reform in a democratic environment. Economic growth and development in a country should not be overemphasized. The world is experiencing a major transformation which is multidimensional. This transformation is both technological, economic, social, cultural, political and geopolitical. Basically international trade has been regarded as an engine of growth of any economy either advanced or less developed economy.

Various policy regimes most of which have to do with structural adjustments on external equilibrium, trade liberalization and trade policy have been introduced by successive governments in Ghana to address the challenges associated with international trade. It is clear that in the five decades of Ghana’s existence, her trade policy has evolved from a fairly liberal one in the 1950s through a significantly controlled regime in the 1970s after which the economy underwent major trade and economic reforms in the 1980s to give rise to the liberalised trade policy currently in existence. This policy is largely guided by developments which have taken place in the arena of international trade under the General Agreement on Trade and Tariffs (GATT) and World Trade Organisation (WTO), trade agreements between Ghana and major trading partners as well as the country’s own economic development policy. Ghana’s trade policy has also been influenced, especially in the 1980s and 1990s by the Bretton Woods institutions.

Empirical literatures show that trade openness or liberalization affects output growth. Most of the studies have concluded the openness of the trade regime has positive relation with GDP growth. In view of the above, the Government of Ghana launched the economic recovery programme that included restructuring the physical infrastructure and economic institutions and decreasing inflation through prudent monetary, fiscal and trade policies. The 1986 trade liberalization programme was part of the Rawlings administration’s World Bank and IMF supported Economic Recovery Programme (ERP).

Many scholars believe that in attempt to harness whatever benefit of international trade for the growth of the economy, the country exposes its economy to external aggressions and the adverse effects of international trade, while others emphasis caution and complete restructure and transformation of the economy in order to confront contemporary global challenges. However, it has also been argued that the consequence of international trade has improved due to many factors, several of which are country and time specific, a country’s trade protection pattern, the flexibility of domestic market or its ability to adjust to changes in economic environment (Afzal, 2007 and Obadan, 2008).

Thus this research seeks to study the impact of institutions on international trade in Ghana this is because a proper understanding of this impacts will be useful in the settings of trade policy.

1.2. Statement of the problem

The impact of international trade on economic growth has been the subject of many discussions and studies over the last several decades. It is strongly argued that international trade can have strong positive effects on economic performance. However, after the prescribed reform agenda, the domestic economy has failed to experience impressive performance. After more than two decades of liberalization of the exchange rate system, import and export diversification, the growth performance of the economy has been between 4.2 % and 5.0% which is less than the targeted growth rate (Aryeetey and Fosu, 2005).

Internal constraints are challenges faced by Ghana as a result of inabilities to meet certain economic standards to help improve in the world market. Some of the internal related problems include lack of capacities and the trade related infrastructure for the integration into the world trade system despite increased market access. This makes Ghana and most of the countries in Africa ineffective to perform in the world market. The second dimension is the external constraints which has limited Ghana from fully exploiting the opportunities in the world market as well as advancing in the area of technology and agriculture. This is largely as a result of the super powerful countries strictly enforcing certain rules which do not allow them to increase their market shares,

The reform agenda of Ghana lost some momentum in the late 1990s. Despite liberalizing investment rules and improving the business climate. Added to the above is the problem knowing precisely, which measure of trade policy is most effective in addressing problems associated with international trade in Ghana. Most previous studies seemed to be divided on this issue. Thus this study seeks to empirically examine the impact of institutions on international trade in Ghana.

Research Questions

This study will be based on the following Research Questions:

What is the impact of institutions on imports in Ghana?
What is the impact of institutions on exports in Ghana?

1.4. Objectives of the Study

The general objective of this study was to determine the extent to which institutions impact on international trade in Ghana. To achieve this general objective, the following specific objectives will be examined.

To examine the impact of institutions on import in Ghana.
To examine the impact of institutions on export in Ghana.

1.5 Research Hypotheses

H₀: institutions has no significant impact on imports in Ghana.
H₀: institutions has no significant impact on exports in Ghana.

1.6 Significance of the Study

This study will be of utmost importance to investors, government and the researchers because it will provide policy recommendations to the various Ghanaian stakeholders taking adequate measures in the economy for rapid growth and development. It is hoped that the exploration of the foreign exchange market, global market, will provide a broad view of the operations of the markets to investors and government. The changing character of trade policy that have affected exchange rate and financial flows in recent times will push studies on international trade to new evidence(s). It will contribute to existing literature on the subject matter by investigating empirically the role which institutions plays in international trade of the country. This study will be of benefit to;

The Academia: members of the academia will find the study relevant as it will also form basis for further research and a reference tool for academic works.

Government: this study will reveal to the government happenings in the global market. Formulation and implementation of policies based on these findings would ensure expansion.

Investors: this study shall also be valuable to the investors especially those who may have research interest as it shall guide their private investment decisions.

1.7 Scope of the Study

This research work examines the impact of institutions on international trade in Ghana. The study covered the period of 1992-2019. This is due to the various policy regime where the country went through a major structural changes such as the Economic Recovery Programme (ERP) in 1983, the structural adjustment programme implemented in 1987, also economic data could be recorded from that period.

1.8 Organization of the Study

This study is divided into five chapters. Chapter one is introduction which consists of the background to the study, statement of problem, research questions, research hypotheses, objectives of the study, the significance of the study, the scope and limitations of the study and finally the organization of the study. Chapter two deals with the literature review which consists of the conceptual literature, theoretical literature, empirical literature, theoretical framework, gaps in literature. Chapter three gives the methodology including techniques of analysis of data, types and sources of data, method of estimation and model specification. Chapter four is presentation and analysis of results which contains the presentation of results, interpretation of results and summary of major findings. Finally, Chapter five gives the summary, conclusion and recommendations.

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