Effect of Trade Openness and Foreign Direct Investment on Industry Performance in Ghana

The macroeconomic implications of trade openness and foreign direct investment (FDI) on industry performance in Ghana have been examined. The main positive determinants of industrial performance are raw materials availability, level of economic performance, wagesand salaries, and rate of inflation. Industrial performance is affected by trade openness through a number of mechanisms, including monetary policy, fiscal policy, and FDI. The methodological approach adopted for the study was by analyzing a set of macro econometric models using quarterly data for the period 1983-2006 under general-to-specific parsimonious conditions. Unrestricted Co-integrating and Vector Error-Correction Modelswere estimated to examine the static and dynamic long-run effects, and the short-run dynamics and speed of adjustment to the long-run equilibrium. The findings indicate that industrial performance is largely impeded by trade openness, high lending rate of banks and to a lesser extent corporate tax. Effective policies should be directed at stabilizing themacroeconomic to reflect in lower lending rates, following agricultural sector increased supply of industrial raw materials and offering attractive wages to workers. Harnessing domestic capital to finance industrial production, instead of relying on FDI (that does not have significant long-run impact on industrial performance in Ghana) is recommended