International Journal of Business and Social Science

ISSN 2219-1933 (Print), 2219-6021 (Online) DOI: 10.30845/ijbss

Exchange rate volatility and Economic growth in Ghana
Eunice Adjei

This study has primarily sought to estimate the exchange rate volatility and to examine the effect of exchange rate volatility on economic growth in Ghana. The investigation covers the period between 1983 and 2010.The variables of concern were five in all which included Exchange rate volatility and Trade Openness, GDP per capita and Physical capital stock and Human capital stock. The ARCH and GARCH Models introduced by Engle (1982) and Bollerslev (1986) were used to model the volatility of the exchange rate using monthly data from January 1983 to December 2010. The exchange rate volatility variables generated were then used in the growth determinant function. The time series analysis the study employed is the Autoregressive Distributed Lag Approach (Peaseran et al, 2001) to analyse the relationship between exchange rate volatility and economic growth in Ghana. From our estimation results, the conclusion drawn was that exchange rate volatility exerted significant negative effect on economic growth during the period both in the short and long run. This is because of the high risk in investing hence discouraging international trade and growth. As recommendations for policy implementation, policy makers’ should aim at stabilizing the exchange rate as that will encourage investors and improve productivity and trade hence good economic performance. Again policy makers need to strength the local industry so as to boost production. When the local production industry is strengthened, it will also reduce the quantity of imports. There should be subsidies and grants to the local industry as well as to boost exports as that will increase trade and boost economic performance.

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