How can ghana become richer

A country that has comparative advantage in many products at the core can diversify or structurally transform quickly. As a country can only build on already established capabilities, with the help of the product map—alongside other metrics associated with the economic complexity framework—policymakers can identify specific products in which stimulated production can quicken economic diversification.

With the aid of complexity analytics, we identify products that can, when appropriately supported by relevant policies, place Ghana on the right path toward economic transformation. Table 1 provides a list of the top 20 of such unexplored products. Source: Compiled using Economic Complexity Dataset. Through interviews with firms that are either producing—or possess the capabilities to produce—the 20 products above, we find that these firms face many obstacles in growing and diversifying into other aligned products.

In contrast stands an older tradition of seeking to compare countries as alike as possible in some dimensions but very different in others. Located next to each other on the West African coast with certain similar economic structures at the time of independence, they nevertheless have pursued radically different economic policies.

What can we learn from comparing the outcome of such policies? While not new see Foster and Zolberg and Eshag and Richards , that question is the focus of this paper. We also seek to put the answer to that question into a wider African context as these countries celebrate 50 years of independence. Why and what can be done to reverse this process is a central issue in development policy. At the time of his death in it looked as though Nkrumah was clearly losing. What can account for this extraordinary reversal of fortunes?

In the next chapter we present in stylised form the recent economic history of the two countries. We then set out in chapters 3 and 4 how trade and tax policies are key to understanding the nature of the growth processes in both countries.

In chapter 5 we consider an issue regrettably central to recent African economic history, i. We stress the diversity of political outcomes across the countries.

In chapter 6 we focus on what we term a common failure, namely the fact that in both countries over the year period since independence policy has failed to transform either country from one characterised by small-scale, low-productivity enterprises to one able to sustain the incomes to which all Africans aspire. A final chapter concludes. Some of these differences relate to questions of political culture and some to the economic institutions which provide the framework in which decisions can be made.

There has been an extensive discussion of the respective roles of geography, disease, institutions and policies in determining outcomes across countries. For instance, Easterly and Levine argue that it is institutions, not policies, that matter.

That leaves us with institutions and policies. The two institutions on which we will focus are aspects of both political and economic structure. The political regimes in the two countries have followed very different trajectories. Ghana moved from an open multi-party State in the s to a one-party State under Nkrumah and then, after periods of civilian rule interrupted by military dictatorships, in the s emerged with a functioning multi-party democratic structure once again.

We will consider how these different dimensions of political and economic structure are linked to the outcomes for the economy once we have outlined the very different patterns of growth. For both countries we show two series using different definitions of GDP. The first is a constant price series from the World Bank World Development Indicators, which measures GDP in units comparable over time within each country.

While the numbers are expressed in constant price USD, these are equivalent to using constant price local currency units. The second series uses the Chain indexed series from the Penn World Tables version 6. It is problematic using the latter to measure changes over time but we report both data series for as long a period as possible in figure 1.

It will be noted that, particularly in the case of Ghana, the two series give a very different profile of the levels of GDP over the period and thus, by implication, of the growth rate. The reason for this is probably the distortions arising from using PPP prices over a period in the s when Ghana's currency was grossly overvalued. This gap is slightly smaller than the gap in the s. These differences need to be seen in the context of the dramatic changes in the world distribution of incomes which occurred over the period from to , as shown in figure 2.

While not unrepresentative of Africa, the failure of both countries to participate in global growth is the central fact that needs explanation in their economic history over this period. Source: Penn World Tables version 6. If we focus on the constant price series, which is a better measure of changes in incomes within the countries, we see that for Ghana the period from to marked a very large fall in incomes, i. The standard approach that economists use to answer questions of this form is to employ the Solow growth model.

This model has the rather counter-intuitive result that investment does not affect the long-run growth of the economy; it determines the long-run level of income.

The long-run growth rate depends on the rate of technical progress, a term which economists give to their ignorance regarding the factors that do determine growth.

The model is a single sector model and thus makes no distinction between the agricultural and industrial sectors. As changing the composition of aggregate output in a way that a greater share accrues to the manufacturing sector has been a central objective of government policy in both countries, we need to go beyond the simple Solow framework in order to understand the factors that underlie the overall pattern of growth.

However, before we do so we will explore how well the simple Solow framework can explain the patterns in the data. It is important not to expect the level of GDP and the level of the savings rate to be closely correlated in the short term. The Solow model seeks to predict the long-term relationship between level of income and the savings rate allowing for underlying technical progress.

So a model which predicts that in the long run lower savings rates will cause lower levels of income is broadly consistent with what we observe. However, there are striking mismatches between the savings rates and growth which require investigation. In Ghana the rapid growth in the period since is not due to a rise in the savings rate, which has been flat over the period.

Answering that question requires us to stand back from the Solow framework and ask a more fundamental question. What determines the rate of investment in the economy? Even if we accept the Solow framework, it cannot explain what drives investment and it certainly is uninformative as to the long-run determinants of growth which are all captured by the technical progress term.

There is, however, much evidence to suggest that investment rates in these economies are related to trade. In the case of Ghana the correspondence of GDP and exports is striking. The CFA franc was devalued in January and the consequences of this in the context of the policy choices facing the government at that time are discussed in chapter 5. This is not only true of the period from Central to the success of African economies from the beginning of the 20th century has been the growth of exports and trade.

The exports that came to characterise West Africa, and indeed Africa more generally, were primary products which included agricultural crops, i. It is frequently argued that it is the nature of African exports which accounts for the nature of their problems.

A variable which increases the probability of a country entering a civil war in the Collier, Hoeffler and Rohner analysis is the proportion of commodity exports in GDP. This is a relatively new view of the problem posed by African export structure. An older view sees the problems related to the deteriorating terms of trade faced by such products and furthermore that they lack the growth potential of manufacturing exports. In the next chapter we will consider this older view; in chapter 5 we will turn to the sources of conflict in these countries.

In the case of cocoa we can carry out a direct comparison across the two countries as both have been important world producers of cocoa over the period since the s. The total export patterns shown in figure 4 are dominated by a relatively narrow range of agricultural and other primary products. A high-stakes presidential election scheduled for next year is likely to make matters worse, as various constituencies, buoyed by the expected oil revenue, are likely to step up demands for public expenditure.

Ezekwesili told the Hon. Dramani Mahama. As Ghana transitions into middle income status, she said, authorities should recalibrate the institutions of public service delivery to take into account rising household incomes and lower foreign aid. It is therefore critical, according to Ezekwesili, to ease the pressure on public finances by prioritizing, putting more emphasis on public-private partnerships to fund major transportation, energy, and water supply projects, and by improving tax administration.

Acknowledging the remarks, Vice President Dramani Mahama said he took good note of the various proposals, including the suggestion that Ghana should consider the possibility of a fiscal responsibility law. Such law, if enacted, would guide public expenditure management and complement reforms envisaged by the formation of the Ghana Revenue Authority, which aims to make revenue collection more efficient. Another pressing challenge is the growing disparity and uneven development between regions.

While it is true that Ghana is one the few African nations that has a solid chance to reach the Millennium Development Goal of cutting poverty in half by thanks to sustained growth over the past two decades, much of the progress achieved so far has largely taken place in the southern part of the country, which includes Accra, the capital. A World Bank study released last March showed that while southern Ghana saw 2.

In recognition of this problem, various administrations have initiated a number of interventions aimed at expanding economic inclusion, with varying degrees of success. Despite providing some relief, these programs have generally suffered from a lack of geographic targeting. In , the government developed a common targeting mechanism that pools resources from five ministries with the broad objective of improving coordination and rationalizing expenditure.

It is hoped that this will helpmaximize the impact of social protection interventions in the country. Mining is causing localized land degradation and water pollution. A quarter of its people are concentrated along the narrow coastal zone. Kumasi is the second largest city in Ghana, after the capital Accra, and functions as the administrative, commercial, industrial, and cultural center of the Ashanti region.

The Republic of Ghana. Total Area: km 2 Population: 26