Ghana - Long Term Growth, Atrophy and Stunted Recovery

Ghana - Long Term Growth, Atrophy and Stunted Recovery

Ghana - Long Term Growth, Atrophy and Stunted Recovery

Ghana - Long Term Growth, Atrophy and Stunted Recovery

Synopsis

Ghana's independence in March 1957 was celebrated with great flourish. But more than a quarter century of increasingly chaotic political and economic turbulence followed. Eventually a major reform program was launched, but after fifteen years its success has been modest. The long-run economic and political records are both lackluster, each limiting the potential of the other. The question is, why has Ghana not achieved sustained and rapid long-term growth? This study seeks to provide an answer.

Excerpt

Ghana's independence in March 1957 was celebrated with great flourish. “Free at last!” Kwame Nkrumah, the country's leader, proclaimed.

Yes, Ghana was free to follow an independent political course, and free to experiment with an independent economic direction. But the exercise of that freedom proved to be destructive. Gradually removing internal agents of restraint, and unconcerned about external constraints, Nkrumah pursued his grand vision of Ghana. But, that vision became a nightmare. More than a quarter century of increasingly chaotic political and economic turbulence followed.

Eventually a major reform program was launched, but after fifteen years its success has been modest. While the downward spiral has been halted, and real growth resumed, real GDP per capita and total factor productivity have barely exceeded the levels achieved at independence.

The long-run economic and political records are both lackluster, each limiting the potential of the other. The question is, why has Ghana not achieved sustained and rapid long term growth? This study seeks to provide an answer.

As we review the experience of the forty plus years of independence, five explanatory themes recur.

The first theme is excess demand. Repeatedly, fiscal and monetary policies have been excessively expansionary, generating bouts of inflation, followed by painful adjustment. Ghanaian entrepreneurs have seldom been able to count on a stable macroeconomic environment for more than a few months into the future. Such a short-term horizon has been damaging.

Currency overvaluation is the second theme. Initially the problem was a fixed nominal exchange rate, maintained in the face of domestic inflation. Exchange controls followed, while inflation accelerated. The real price of foreign exchange was depressed to a small fraction of its level at independence, and forced the economy to become virtually autarkic. Recovery of the real exchange rate under the reform program has occurred, but its instability remains a serious source of uncertainty for all—exporters, import competing producers, and foreign investors alike.

Third, closely related to the foregoing, Ghana has frequently failed to realize the potential gains from pursuing and supporting its comparative advantage. Among the traditional exports, cocoa suffered from a variety of devices that suppressed the real producer price and depressed production to well below its optimum. Minerals, until recently, endured state ownership, and neglect of infrastructure.

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.