Exchange Rate, Government Expenditure and Export Performance in Ghana

Abstract

A number of countries have pursued major policies aimed at increasing their dominance in the international market to earn foreign exchange and to boost their balance of payment through increasing exports. The objective of this study was to determine the impact of exchange rate movements and government expenditure on export performance in Ghana. The study used explanatory design, quantitative approach and positivism philosophy. Annual time series secondary data from 1987 to 2020 was sourced from world development indicators. The ADF and PP tests were deployed to examine the stationarity and order of integration of the concerned variables whilst (the GARCH 1, 1) approach was employed to estimate exchange rate volatility in Ghana. The data analysis method used the ARDL technique. Findings showed a negative association between exchange rate volatility and export performance in both the long and short run. Akin to conventional findings, the study discovered a positive significant effect of government expenditure on export performance both in the long and short run periods. The control variables credit to private sector and gross domestic product growth showed a positive relationship with export performance. Notwithstanding, trade openness demonstrated a negative impact on export performance in Ghana. It is therefore recommended that the Bank of Ghana should step-up its exchange rate stabilization drives to minimize the exchange rate risk imposed on trade players. In addition, the Bank of Ghana should sensitize trade players on the need to patronize forward contracts.