Testing the Effects of Earnings of Cocoa and Non Traditional Exports on Real Exchange Rate in Ghana

ABSTRACT

Exchange rate basically influences a currency value of an economy. As such it plays a critical role in international trade as well as economic growth and development for every economy. The study sought to investigate the impact of earnings of cocoa and non-traditional exports on real exchange rate in Ghana. Using a disaggregated data for exports, annual time series data were interpolated into quarterly series over the sample period 1990Q1 to 2011Q4. Johansen cointegration test and error correction model were employed for examining both the long run and short run relationships. The outcome of the study showed that real exchange rate is appreciated for export earnings thus earnings of cocoa and non-traditional export, foreign aid as well as export earnings of mineral while trade openness, government expenditure and money supply depreciate the real exchange rate. The study recommended that the government should make production of cocoa more attractive by way of providing incentives such as scholarship to the wards of cocoa farmers in addition to subsidies (mass spraying) among others. It is equally expedient to channel a little more resources to the nontraditional export sector especially the production of cashew in order to attract more foreign exchange. Summing up, it is a high time the country diversified and added value to our exports commodities, most especially the cash crops.