Determinants of Ghana’s Non-Traditional Export: A case of the Manufacturing Sub-sector

Abstract

Earnings from Ghana's non-traditional export sector (NTEs) have been substantially bolstered by contributions from the manufacturing sub-sector of the NTEs from 2005 to 2021 although the country has comparative advantage in producing and exporting agricultural products. Considering how important the manufacturing sub-sector is to Ghana’s NTE earnings, this study identified the determinants of Ghana’s NTEs manufactured exports and how trade costs associated with the sub sector influenced its exports. This study further investigated the determinants of trade costs associated with Ghana’s NTE manufactured exports. The gravity model of trade was utilized to investigate variables of interest. Panel dataset of Ghana and 65 of its trading partners was used. The dataset covered from 2009 to 2019. The Random effects model (REM) was used to ascertain the effect of variables such as infrastructure, Ghana’s GDP and GDP of trading partners, the difference in GDP per capitas of country pairs, Ghana’s population and of its trading partners, the real effective exchange rate, regional trade blocs (ECOWAS and EU), common language and geographical variables (distance, common border, and landlocked trade partner). This research revealed that Ghana’s population, landlocked trading partners and the real exchange rate were negatively related to manufactured exports. A depreciation of the Ghana cedi renders manufactured exports cheaper thus increasing manufactured export flow to trading partners. The negative relationship between Ghana’s population and manufactured exports implied that Ghana was a net consumer of manufactured exports hence decreasing Ghana’s manufactured exports to partner countries. The analysis also proved that trading with landlocked countries which was a proxy for transportation costs will increase trade costs hence significantly decreasing Ghana’s manufactured exports to such partners. These three variables were found to be key determinants of Ghana’s manufactured exports to trading partners along with the importer’s population, trading with partners with common borders, and ECOWAS which positively and significantly influenced Ghana’s manufactured exports. For analyzing the determinants of the trade costs associated with Ghana’s manufactured exports over the period 2009 to 2018, 54 trading partners were used. The findings revealed that infrastructure, transportation costs, ECOWAS, common border, and landlocked are key determinants of the trade costs associated with Ghana’s NTE manufacturing sub-sector.