Abstract:
Stabilizing the exchange rate in Ghana has been a major concern. This study
examined the effect of exchange rate appreciation and depreciation on the
performance of the manufacturing sector in Ghana. Again, it investigated whether
there exists an asymmetric relation between the exchange rate and manufacturing
performance in Ghana. This study employed non-linear autoregressive distributed
lags to examine the purpose of the study. The results from the NARDL models
indicate that, on average, both appreciation and depreciation of the exchange rate
and Gross Fixed Capital Formation (investment) are significant determinants of
the performance of the manufacturing sector in Ghana in the long run. From the
short-run estimates, the linear and nonlinear ARDL models revealed that the real
effective exchange rate, inflation rate, gross fixed capital formation, and labor
force participation influence the manufacturing sector. The results confirm the
presence of asymmetric relationships between the exchange rate and
manufacturing output in Ghana. The effect of appreciation of the currency is more
than that of depreciation. In view of this, it is recommended that the central bank
and the government, through the Ministry of Finance should ensure stabilization
of the currency by abolishing the of use of foreign currency to trade in Ghana.
Again, some more restrictive measures such as increases in import duties and
tariffs should be put in place for goods and services that could be locally produced
so as to reduce the pressure on the demand for foreign currency.
