Abstract:
In contrast to previous studies on the relationship between trade
openness and economic growth, this study develops a new measure of trade
openness. Composite Trade Intensity (CTI) was employed to generate an
index to capture trade openness. The study used Trade Intensity (TI) and
Relative World Trade Intensity (RWTI) dataset to create an index for trade
policy openness. This new measure of trade openness improves on the results
of trade openness compared with the traditional measure of trade openness
which takes into account the size of Ghana’s trade to the rest of the world in
comparison to its national economy and this is shown in the long and short run
estimates in Table 6 and Table 7 using CTI and Appendix C and Appendix D
using TI (X+M/GDP) as a measure of trade openness respectively. The study
used data which span from 1986 to 2015. The Autoregressive Distributed Lag
(ARDL) approach to cointegration was used to examine this relationship. The
regression results show that trade openness, FDI, real effective exchange rate,
capital stock and labour force are important determinants of economic growth
particularly in the long run. However, inflation was found to be growth
hampering. The Granger causality test revealed a unidirectional causality
between trade openness and economic growth running from trade openness to
growth. The study recommends that policy should focus on export promotion
strategy and encourage efficient utilization of capital goods; ensuring enabling
environment to attract the needed FDI to the industrial and the agricultural
sectors; and maintaining price stability in order to stimulate economic growth
in Ghana.
