OBED ARYEE DUTCH DISEASE EFFECTS OF OIL DISCOVERY IN GHANA (original) (raw)
ANALYZING THE DUTCH DISEASE EFFECTS OF THE OIL DISCOVERY IN GHANA
It is usually claimed that countries that discover abundant natural resources (especially oil and gas) are likely to suffer from Dutch Disease (a kind of Natural Resource Curse). The symptoms of the Dutch Disease are often shown when a country’s currency appreciates and its traditional export sectors (agricultural and manufacturing sectors) become less competitive. The less competitiveness of the traditional export sectors eventually causes structural changes in the economy by reducing output and employment and increasing the general price level. This paper studied possible occurrence of Dutch Disease through four main transmission channels: currency appreciation effect, spending effect, resource movement effect and saving, investment and physical capital effect. The paper further investigates that corruption, conflict and political instability, mismanagement of oil revenues, over dependent on natural resources as primary exports and oil price fluctuations are likely factors that can cause oil curse in oil-rich nations. It is asserted that Ghana may be a victim of the Dutch Disease as a result of its recently discovered oil. Therefore, it is the aim of this paper to analyze whether Ghana could be affected by the Dutch Disease through either currency appreciation effect, spending effect or the resource movement effect by examining the impact of the expected oil revenue inflows on Ghana’s exchange rate, agricultural output and its inflation. Since the oil revenue is yet to come in the future, the paper adopts an ex post study approach by using export earnings of gold as a proxy for the expected oil revenue inflows in the various tests. This paper uses Multiple Linear Regression (MLR) analysis to show that the Dutch Disease is less likely to occur in Ghana. The paper discovered that the expected oil revenue inflows would rather cause the Ghana cedi to depreciate rather than to appreciate. Again, the paper discovered that the expected oil revenue inflows would have an insignificant negative impact on agricultural output and inflation. Finally, the paper ends with policy recommendations such as using managed float to control the exchange rate, choosing monetary policies that are consistent with fiscal policies to stabilize the economy, diversifying the economy away from natural resource-based exports into a more income enhancing export products, and mapping out strategies to curtail corruption.
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