An Application of the Error Correction Model in Analyzing the Long Run Equilibrium between Ghanaâ€™s Exports and Imports
Henry de-Graft Acquah and
Joyce De-Graft Acquah
APSTRACT: Applied Studies in Agribusiness and Commerce, 2015, vol. 09, issue 3
This study investigates the long-run relationship between Ghanaâ€™s exports and imports for the period of 1948 to 2012. Using the Engle Granger two-step procedure we find that Ghanaâ€™s exports and imports are cointegrated. However, the slope coefficients from the cointegration equations were not statistically equal to 1. Furthermore, application of the error correction model reveals that 1% increase in the imports will significantly result in 0.56% increase in exports, suggesting that the exportsâ€™ responsiveness to imports is low. The estimated error correction coefficient suggests that 32% of the deviation from the long run equilibrium relation is eliminated, leaving 68% to persist into the next period. These results suggest persistence in the trade deficit and an option of curbing the deficit is to re-order the relationship between imports and exports with a view to reducing imports demand. These results imply that though Ghanaâ€™s past macroeconomic policies have been effective in bringing its imports and exports into a long run equilibrium, it is yet to satisfy the sufficient condition for sustainability of foreign deficit.
Keywords: Foreign deficit; sustainability; exports; imports; cointegration; Agribusiness; International Relations/Trade; Research Methods/ Statistical Methods (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:apstra:231053
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