Determinants of export demand and their stability in Ghana

Abstract

International trade has now become a necessary part of the growth process of every nation. However, disequilibrium in the external sector can be transmitted into the domestic economy with far-reaching consequences. Most countries, in one way or the other, have tried to reduce these effects through different policies. The effectiveness of such policies depends on the factors that affect trade flows. Therefore, the study examines the factors that determine export demand in Ghana for the period 1970 to 2011. Using Johansen cointegration methodology, export demand is cointegrated with real effective exchange rate, domestic export prices, world export prices and real world income. The export demand function exhibits stability for the period under review. The study recommends the use of export price policies to effectively influence trade flows and trade balance. However, this must be done in conjunction with prudent fiscal and monetary outlays

Key Words: Exports, Co-integration, Error Correction, Parameter Stability