This research aims to find out the connection between the Real Exchange Rate of Ghana with its Imports and Exports

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Real Effective Exchange Rates and Impact on Exports and Imports in Ghana 

Abstract

 

This research aims to find out the connection between the Real Exchange Rate of Ghana with its Imports and Exports. The quantitative method with Secondary Data Collection method has been used in which 10 years of data covering a period from 2012 to 2021 is selected. Different Statistical measures such as Descriptive Statistics, Pearson Correlation and Regression were applied to evaluate the results through E-views. A significant connection is found between the Real Exchange Rate of Ghana and its imports, but the relationship is found insignificant when it is compared with Exports of the Country. 

Introduction

Exchange rate means the value of a nation’s currency when compared with the currency of another nation. It means the rate at which a currency may be exchanged for another. There tends to be a high volatility or instability in terms of the exchange rate. Some core elements impacting the exchange rate include inflation rates, geopolitical stability, monetary policy, economic performance, and tourism (Adeniran, Yusuf & Adeyemi, 2014). Volatility focuses on representation of the degree to which the variable transforms over time. The higher a variable fluctuates, or more quickly it tends to change, the more volatility it has. Volatile rates (exchange) enable making investment and business decisions difficult as volatility increases the risk of the exchange rate. The risk of an exchange rate involves the capability to lose money because of the major changes in the exchange rate (Reboredo et al., 2014). The volatility of the exchange rate is usually analyzed in terms of international trade. Various past research papers have a strong emphasis on assessing whether the risk of the exchange rate may affect international trade (Cheung & Sengupta, 2013). Interestingly, there is little empirical evidence that exchange rate fluctuations have a significant impact on trade and welfare, and interest rate fluctuations seem to be much more important than exchange rate fluctuations.

In addition, fluctuations in the exchange rate are not necessarily harmful. In a world of sticky prices, exchange rate fluctuations in response to changes in economic fundamentals can offset the adverse effects of inherent negative actual shocks. At the same time, the stability of the ratio between larger currency claims and major currencies is an important factor that affects the exchange rate, partly the flexibility created by the exchange rate market itself (Amiti, Itskhoki & Konings, 2014). If exchange rate fluctuations are caused by non-essential reasons, they can still be a good example of exchange rate stability. It feels that they are mainly driven by investor psychology. The degree of openness of a country is considered to be an important factor in determining the outcome of foreign direct investment in a floating exchange rate market (Forbes, Hjortsoe & Nenova, 2018). Several factors may impact foreign exchange rates. Some of the core elements include interest rates, inflation rates, government debt, and the current account of the country, recession, political stability, and speculation.

One of the main impacts associated with the exchange rate changes is on the imports and exports of a country. The main purpose of this assessment is to evaluate the impact of effective exchange rates on exports and imports in Ghana. Ghana with the official name of the Republic of Ghana is a country located in West Africa. Ghana is a multinational state and a variety of ethnic communities and religious groups are residing in it. The Health and Development Index (HDI) of the country is located on a medium scale and Gini Index of 43.5 which means that they can manage things properly.

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