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A macroeconometric analysis of export instability in economic growth (the case of Ghana and the world cocoa market)

by Amoaful, P.
Publisher: Oct 1972Subject(s): CACAO | EXPORTACIONES | ECONOMETRIA | ANALISIS ECONOMICO | COMERCIO EXTERIOR | GHANA | CACAO (PLANT) | EXPORTS | ECONOMETRICS | ECONOMIC ANALYSIS | FOREIGN TRADE | GHANA | CACAOYER | EXPORTATION | ECONOMETRIE | ANALYSE ECONOMIQUE | COMMERCE EXTERIEUR | GHANA In: Dissertation Abstracts International, A (EUA) v. 33(4) p. 1271Summary: Much apprehension prevails especially among developing countries that export instability or fluctuations in their foreign exchange receipts from primary commodity exports may induce general internal economic instability and serve as a hindrance to steady investment and rapid economic growth. The study explores the theoretical and empirical basis for this concern in two stages: first, it reviews the major theoretical writings and discusses and evaluates the empirical evidence on the trade-growth relationship. From this emerges a certain lack of parallelism between the theoretical treatment and the empirical work on the subject: the theoretical discussions and maintained hypotheses about the relationship between trade, export fluctuations and growth (re-formulated more vigorously) follow familiar macroeconomic analysis and run in terms of output, income, investment, price expectations and multiplier effects; there is a view of the export-instability problem as a structural and dynamic problem and a factor in general economic instability; but on the other hand, the existing empirical studies employ static, single equation models and statistical methods not adequate for dealing with structural systems or for testing hypotheses about their dynamic behaviour. The second stage is an application of the macroeconometric method, dynamic multiplier and simulation techniques to the problem in the specific context of Ghana. Because the world cocoa market constitutes the major source of export instability in Ghana, this involves, not only the building of a structural model for Ghana but also a detailed econometric analysis of the general equilibrium price dynamics of the market including simulations of buffer stock regulated price stabilization schemes. Two major hypotheses, the 'steady export growth' (SEG) and Commodity Market Stabilization (CMS) are tested. The empirical findings for the post-War Ghana experience suggest that (a) fluctuations in export earnings tend to induce cummulatively, over time, systemmatic waves of fluctuations in internal economic activity; the waves seem to be associated with the long-run cocoa price-planting-production and consumption-price cyclical variations; (b) that Commodity Market Stabilization schemes such as a Buffer Stock Agreement of the type agreed upon by the Cocoa Producers' Alliance in 1967, by which minimun and/or maximum price limits are secured by quotas-cum-buffer stock open market operations, can potentially generate economic gains but also losses in terms of foreign exchange earnings, income, price stability, employment, etc. But the nature and extent of any gains or losses depend upon (i) the nature of the agreement and especially the specification of price limits for the particular commodity or commodities involved, (ii) the production (supply), demand, price-response characteristics of the commodity cycle (iii) the social rate of return on capital and the social rate of time preference.
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Much apprehension prevails especially among developing countries that export instability or fluctuations in their foreign exchange receipts from primary commodity exports may induce general internal economic instability and serve as a hindrance to steady investment and rapid economic growth. The study explores the theoretical and empirical basis for this concern in two stages: first, it reviews the major theoretical writings and discusses and evaluates the empirical evidence on the trade-growth relationship. From this emerges a certain lack of parallelism between the theoretical treatment and the empirical work on the subject: the theoretical discussions and maintained hypotheses about the relationship between trade, export fluctuations and growth (re-formulated more vigorously) follow familiar macroeconomic analysis and run in terms of output, income, investment, price expectations and multiplier effects; there is a view of the export-instability problem as a structural and dynamic problem and a factor in general economic instability; but on the other hand, the existing empirical studies employ static, single equation models and statistical methods not adequate for dealing with structural systems or for testing hypotheses about their dynamic behaviour. The second stage is an application of the macroeconometric method, dynamic multiplier and simulation techniques to the problem in the specific context of Ghana. Because the world cocoa market constitutes the major source of export instability in Ghana, this involves, not only the building of a structural model for Ghana but also a detailed econometric analysis of the general equilibrium price dynamics of the market including simulations of buffer stock regulated price stabilization schemes. Two major hypotheses, the 'steady export growth' (SEG) and Commodity Market Stabilization (CMS) are tested. The empirical findings for the post-War Ghana experience suggest that (a) fluctuations in export earnings tend to induce cummulatively, over time, systemmatic waves of fluctuations in internal economic activity; the waves seem to be associated with the long-run cocoa price-planting-production and consumption-price cyclical variations; (b) that Commodity Market Stabilization schemes such as a Buffer Stock Agreement of the type agreed upon by the Cocoa Producers' Alliance in 1967, by which minimun and/or maximum price limits are secured by quotas-cum-buffer stock open market operations, can potentially generate economic gains but also losses in terms of foreign exchange earnings, income, price stability, employment, etc. But the nature and extent of any gains or losses depend upon (i) the nature of the agreement and especially the specification of price limits for the particular commodity or commodities involved, (ii) the production (supply), demand, price-response characteristics of the commodity cycle (iii) the social rate of return on capital and the social rate of time preference.

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