Empirical Investigation into the Determinants of Non-Traditional Exports Growth in Ghana: A Gravity Model of Trade Approach

ABSTRACT

 The exports sector plays a vital role in economic growth and development in Ghana. NonTraditional Exports (NTEs) is essential in expanding the exports sector. Hence, this paper applied the augmented gravity model of trade to investigate the determinants of Non-Traditional Exports (NTEs) growth in Ghana. A panel dataset of Ghana and her 78 major trading partners from 2004 to 2016 was used. The Poisson Pseudo Maximum Likelihood regression (PPML) was used to reveal the effect that variables such as economic size, transportation cost, regional trading blocs, and institutional quality have on Non-Traditional Exports in Ghana. The estimates uncovered that NTEs flows increased significantly with the expansion of variables such as GDP of Ghana, trading partner’s GDP and trading partner’s population. Also, NTEs growth is positively associated with low transportation cost (distance), sharing a common border, common official language and high level of importing country trade openness index. Moreover, high level of the trading partner institutional quality variables such as political stability and absence of violence and rule of law facilitates NTEs positively whereas a high level of regulatory quality control affects NTEs negatively. Regional trading bloc’s variables such as ASEAN, EU, and ECOWAS have significant trade creating potential. Finally, the findings revealed that Ghana’s NTEs have unexploited exports potential with 45 out of the 78 trading partners used in the study. The study recommended that policymakers should implement initiatives that will enhance Ghana’s NTEs to countries with unexhausted trade potentials. With regards to the exhausted trade potential destination, policies that make exports diversification a focal point should be implemented to enable the recapturing of the exhausted markets destination.