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The Effect of Foreign Aid on Real Exchange Rate in Ghana

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  • Peter Arhenful

Abstract

This paper assesses the effect of foreign aid inflows on real exchange rate in Ghana in order to test the hypothesis that large foreign aid inflows might lead to the appreciation of the real exchange rate of the recipient country and thus, impact negatively on its trade position, a case known as “The Dutch Disease†effect. Using the ordinary least squares method of estimation, the paper finds that although foreign aid inflows to Ghana are quite high, foreign aid inflows have positive impact on the real exchange rate. In other words, foreign aid inflows lead to the depreciation of the cedi, implying that “The Dutch Disease†hypothesis of large foreign aid inflows is rejected in the case of Ghana. In terms of policy recommendation, the results suggest that Ghana can still receive aid without fear of harming its exports competitiveness.

Suggested Citation

  • Peter Arhenful, 2013. "The Effect of Foreign Aid on Real Exchange Rate in Ghana," Advances in Management and Applied Economics, SCIENPRESS Ltd, vol. 3(5), pages 1-11.
    • Handle: RePEc:spt:admaec:v:3:y:2013:i:5:f:3_5_11
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    Cited by:

    1. Snober Fazal & Muhammad Azhar Bhatti & Tusawar Iftikhar Ahmad, 2019. "Sectorial growth, Exchange rate and Fiscal policy in Developing Economies: The Interlinkages," iRASD Journal of Economics, International Research Alliance for Sustainable Development (iRASD), vol. 1(2), pages 68-81, December.
    2. Sèna Kimm Gnangnon, 2020. "Development aid, remittances inflows and wages in the manufacturing sector," Journal of Social and Economic Development, Springer;Institute for Social and Economic Change, vol. 22(2), pages 278-304, December.
    3. Gnangnon, Sèna Kimm, 2020. "Development Aid, Remittances Inflows and Wages in the Manufacturing Sector of Recipient-Countries," EconStor Preprints 213439, ZBW - Leibniz Information Centre for Economics.

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