A Vector Error Correction Analysis of International Price Dynamics in Ghana’s Cocoa, Gold, and Crude Oil Markets

Abu Ibrahim Azebre
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Abu Ibrahim Azebre: Department of Statistics and Actuarial Science, C. K. Tedam University of Technology and Applied Sciences, Navrongo, Upper East, Ghana

International Journal of Research and Scientific Innovation, 2025, vol. 12, issue 5, 834-850

Abstract: The Vector Error Correction Model (VECM) on the dynamic interrelationships between the international prices of cocoa, gold, and crude oil in the context of Ghana were conducted. Summary statistics indicate that gold is observed to have the greatest stability in prices whereas crude oil has been most volatile. The unit root tests confirmed that in their original form all three commodities are non-stationary but become stationary after first differencing hence implying similar integration properties. The Johansen co-integration test identified two significant long-run relationships whereby crude oil greatly affects both gold and cocoa markets. The VECM (1) results confirm that long-term price movements are driven by oil price changes, while gold and cocoa prices promptly adjust to deviations from equilibrium. Short-run dynamics reveal a high degree of self-dependence in gold and cocoa prices, whereas oil price developments reflected the external influence of other commodity prices. Impulse Response Functions (IRF) show crude oil price shocks have persistent effects on cocoa prices, while their effects on gold prices fizzle out over time. FEVD suggests that gold and cocoa prices are, by and large, self-driven, and oil price shocks account for only 9.88% of variation in gold prices and 15.30% of fluctuations in cocoa prices. This indicates that global oil price shocks may feel lesser impact on Ghana’s commodity markets than expected, while interrelationship between gold and cocoa seems stronger. The study, To mitigate the impact of oil price volatility on Ghana’s key exports like cocoa, the government and private sector should adopt market stabilization policies such as commodity futures and options trading, invest in value-added processing, and implement macroprudential measure. In order to lessen the impact of fluctuations in oil prices on Ghana’s main exports, such as cocoa, the public and private sectors should invest in value-added processing, implement macroprudential measures to lessen vulnerability to external price shocks, and adopt market stabilization policies like trading commodities futures and options to reduce vulnerability to external price shocks.

Date: 2025
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