Financial Development- International Trade Nexus in Ghana: The Role of Sectoral Effects

Abstract

Abstract This study investigates the role of sectoral effects in the finance-trade nexus using time series data from Ghana from 1960 to 2017. Our evidence from the autoregressive distributed lag (ARDL) estimates indicates that while the effect of sectoral value additions on trade is conditional on the proxy of finance, financial development significantly promotes trade in both the long and short run regardless of the proxy. Moreover, even after accounting for sectoral value additions, finance had a positive effect on trade. On the moderation front, we observe that increased agricultural value additions mitigate the beneficial impact of finance on trade, whereas increased service value additions magnify the beneficial effects. Thus, to boost international trade in Ghana, policymakers should prioritise fostering complementarity between the industrial, agricultural, service, manufacturing, and financial sectors. Jel Classification: F13; F14; G21