Effects Of Real Exchange Rate Uncertainty On Private Investment In Ghana

Abstract

The effect of real exchange rate uncertainty on private investment in Ghana from 1970 to 2002 has been investigated. The analysis of private investment was made based on Guncavidi mode. The parameters of the model included several variables, with the levels of real exchange uncertainty and effect on private investment as one of the variables. The variables were found to be co-integrated, necessitating the use of an error-correction approach for analysis. The results of the study indicated that real exchange rate uncertainty is a significant determinant of private investment and that real exchange rate uncertainty has a negative impact on private investment in Ghana. The policy implication of the findings is that government should pursue sound exchange rate policies that would lead to stabilizing the macroeconomic environment so as to encourage capital accumulation and hence further investment. Additional investment in public infrastructure and human capital would also act as incentive to private investors in the country.

Journal of Business Research Vol. 1 (1&2) 2007: pp. 61-72