EXCHANGE RATE VOLATILITY AND EXPORT PERFORMANCE: EVIDENCE FROM THE GHANAIAN EXPORT SECTORS

ABSTRACT

This study seeks to examine the effect of exchange rate movements on export sector performance in Ghana. The focus is on the real sector of the economy thus, Agricultural, Industrial and Services Sectors. A quantitative research design is employed. It uses data from the World Development Indicators (WDI) and the sample period spans1984-2016. The Generalized Autoregressive Conditional Heteroskedastic (GARCH) model is employed in calculating exchange rate volatility. This was after an ARCH effect had been established among the exports. Specifically, the GARCH (1,1) model is employed in establishing and analyzing the dynamic interactions and long-run relationships between variables. Also, the autoregressive distributed lag co-integration technique is adopted. The study finds that, exchange rate volatility impacts negatively on export performance in all the three main sectors of the economy. Both the long-run and short-run results find statistically significant positive effects of GDP growth, foreign direct investment, credit to private sector and government expenditure on infrastructure on export performance. Inflation is negative and statistically cogent only in the case of the industrial sector export. However, the chief variable of interest, exchange rate volatility and trade openness (tariff rate) have negative effects on Ghana’s export as well as the sectoral exports both in the long run and short run.

Keywords: Real sector, Exchange rate volatility, Generalized Autoregressive Conditional Heteroskedastic, Autoregressive distributed lag, Bank of Ghana, Forward contracts, Foreign exchange market, Export performance, Cedi.