Economy of Ghana

Topics: Monetary policy, Central bank, Fractional-reserve banking Pages: 5 (1371 words) Published: November 26, 2008
Trade liberalization was established upon as part of government policy toward a market based economic approach to sustainable as prescribed under the Economic Recovery Programme and Structural Adjustment [ERP/SAP] in April 1983. The policy seeks to eliminate barriers to export and import sector of the economy and there by promote large scale production within the domestic economy.

Some of the obvious merits of trade liberalization in Ghana are increased output especially of non-traditional goods for export, increased access to foreign goods on the Ghanaian market, increased employment and easier transfer of production including foreign direct investment. The trade reform policy however, argues that the implementation of the policy has led to decreased industrial output and rent seeking activities.

With the implementation of trade liberalization, Ghana’s exports as well as imports have increased tremendously. For example; growth in export [F.O.B] increased from -3.09% in 1983 to 12.1% in 2003. For the same period imports were 16.6% and 16.8% respectively, similarly, the volume and value of non-traditional exports in particular have been increasing consistently since the implementation of trade liberalization programme in 1983. According to Ghana’s statistical service [2005], the contribution of the non-traditional export to the total export of Ghana grew from 4.2% in 1985 to 25% in 2002.

Another impact of trade liberalization on Ghana’s economy is increased access to foreign goods at cheaper prices. The policy is designed for increased competition and production efficiency. As a result of this, prices are highly charged. The influence of the foreign goods on the Ghanaian market is to promote consumer sovereignty with positive welfare implications for income redistribution and social welfare. Some of the foreign good on the Ghanaian market includes drugs, food, electronic gadgets, automobiles, telecommunication services and facilities, textiles and building materials.

Trade liberalization has encouraged the flow of capital into the Ghanaian economy to support the low investment as a result of low savings from domestic resource. With the implementation of trade liberalization, capital flow [net] into Ghana rose from US$24m in 1988 to US$ 564m in 1999. it is obvious that this figure would even improve in recent years given the HIPC adoption of Ghana in 2001.

The argument that trade liberalization has not promoted industrialization in Ghana is still debatable. This is because data available from Ghana Statistical Service shows that growth rates in industrial sector have been negative between 1972 and 1983 except for 1977. Since 1984 growth in industrial sector has been positive but fluctuating. It was 11.6% in 1984, 17.6% in 1985, 1.3% in 1994, 6.4% in 1997 and 4.7% in 2002. it is however, possible that trade liberalization has impeded upon industrial innovation, modernization and rapid growth of industrial output of indigenous forms.

Another demerit of trade liberalization is that it has negatively impacted upon the macroeconomic stability of the Ghanaian economy in terms of foreign exchange fluctuation and depreciation and overall balance of payment defraits. These result in capital flight and inefficiency in monetary policy implementation. For instance whilst trade balance worsen from US$198m in 1987 to US$ 417 in 1991, the overall BOP was US$ 139m and US$ 9m for the same years. Similarly the exchange rate [¢/$] depreciated from 2.75 in 1982 to 60 in 1985 and 8438.82 in 2002 [IMF]

Considering the above and in addition to the fact that trade liberalization has benefits in the form of increased employment, government revenue and the benefit globalization. I am of the opinion that the implementation of the trade liberalization policy has done more good than harm to the Ghanaian economy.

The Ghanaian economy comprises of three main sectors namely agriculture, industry and services.

Since independence,...
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