How does quality of institutions affect the impact of trade openness on economic growth of Ghana?

Abstract

Developing countries, of which Ghana is no exception have actively engaged in trade openness after independence, yet, their economic growth remains low and this calls for urgent attention to address the situation. This study therefore examines the impact of trade openness on economic growth of Ghana for the period 1984-2018 taken into consideration the role quality of institutions play. The results from the autoregressive distributed lag model (ARDL) reveal that, both trade openness and quality of institutions exert a significant positive impact on economic growth in both the long and short run. However, the interaction of trade openness and quality of institutions is shown to have insignificant impact on economic growth in both periods. The results further indicate that exchange rate has a significant positive (significant negative) impact on economic growth in the long run (short run). Based on the findings, the study concludes that, institutional quality has no influence on the impact of trade openness on economic growth in the Ghanaian context. Policy implications aimed at ensuring sustained economic growth have been put forward for the discourse of stakeholders.

Trade openness and economic growth nexus: Exploring the role of institutional quality in Nigeria

“…Interestingly, while the positive coefficient of lnTO is not significant in the long-run, the interaction term lnTO � lnIQ ð Þ has a positive coefficient statistically significant at 5% level. This is different from the condition Duodu et al (2020) identified for Ghana. The statistically significant-combined effect on economic growth for trade openness and institutional quality highlights the importance of building quality institutional frameworks as part of strategies designed to facilitate growth potentials of openness to trade.…”

“…This identified variation in estimates is expected given recent changes in the trade environment significantly accommodated in this present study by the extension of the sample period to 2017. In comparison to results from other African economies, Nigeria differs from the case of Cote d'Ivoire documented by Keho and Grace Wang (2017) but similar to the condition Duodu et al (2020) identified for Ghana. The coefficient of labor is positive and statistically significant at the 1% level.…”

“…A number of empirical studies suggests that the growth effect of trade openness may depend on institutional and socio-economic factors (Baliamoune-Lutz and Ndikumana, 2007;Duodu et al, 2020;Sakyi et al, 2015b;Zahonogo, 2016). Of particular relevance for this study is the finding from Baliamoune- Lutz and Ndikumana (2007), attributing the failure of trade reforms in generating 1984 1985 1986 1987 1991 1995 2001 2005 economic growth in African economies to poor institutions.…”

“…The nexus between trade openness and economic growth has attracted significant interest in the literature. Recent studies have investigated both regional and individual country experiences, incorporating other institutional, social, economic, and technological factors (see Dowrick and Golley, 2004;Yanikkaya, 2003;Awokuse, 2008;Shahbaz, 2012;Menyah et al, 2014;Olubiyi, 2014;Sakyi et al, 2015aSakyi et al, , 2015bYusoff & Nuh, 2015;Ee, 2016;Salahuddin & Gow, 2016;Zahonogo, 2016;Khamphengvong et al, 2017;Mireku et al, 2017;Keho & Grace Wang, 2017;Pradhan et al, 2017;Darku & Yeboah, 2018;IDRIS et al, 2018;Huchet-Bourdon et al, 2018;Benita, 2019;Burange et al, 2019;Ma et al, 2019;Tang et al, 2019;Duodu et al, 2020;Nwadike et al, 2020).…”

“…Menyah et al (2014) used a panel of 21 countries to show that limited support exists for trade-led growth hypotheses in Africa. Duodu et al (2020) examined the condition in Ghana covering the period from 1984 to 2018 and incorporating the role of institutional quality. Short-run and long-run estimates from the autoregressive-distributed lag model (ARDL) suggest that trade openness and quality of institutions have a significantly positive impact on economic growth while the interaction between the two variables has an insignificant impact.…”