Cointegration and Causality Analysis of Ghanain Exports, Foreign, Domestic and Human Capital

Endogenous growth theory holds that outward oriented trade policies promote growth and better performance of economies in the medium and long-term. The theory however, emphasizes that the fundamental factors that enhance long-term growth are human resources, physical infrastructure, macroeconomic stability, the rule of law and the role of intangible inputs such as knowledge acquisition. To investigate whether available date suggest cointegration and causality among physical capital, human capital and exports in Ghana, a production function is postulated for exports. Multivariate cointegration and causality analyses were performed on variables included in the model using the Johansen (1988, 1991, and 1992) approach. The evidence suggests the variables are cointegrated with four causality running from exports to domestic savings. Evidence also points to significant short-run deviations. The policy implication is that to increase domestic savings, exports must increase.