Abstract:
The long-run relationship between exports and imports has been the subject of intensive research in developed and
developing economies. This relationship is of importance due to the fact that it reflects the stability of foreign trade
situation of a country. The main objective of this paper is to study and investigate the long-run relationship between
exports and imports in Ghana’s economy. A time series econometric techniques of unit root tests, Johansen
cointegration and error-correction mechanism were applied. Annual data for real exports and real imports for the
period 2002 – 2015 were used. The results of ADF unit root tests suggest that the two variables export and imports
are integrated of order one. Johansen cointegration test revealed that, a long-run cointegrating relationship exist
between exports and imports in Ghana. The error-correction model found a long-run unidirectional causality from
imports to exports. This means that the short run fluctuations between exports and imports are sustainable since, in
the long run, they will eventually converge towards an equilibrium state. The study confirms that Ghana is not in
violation of its international budget constraints, and macroeconomic policies have been effective in bringing exports
and imports into a long-run equilibrium.
