ECONOMY OF GHANA I

ECON 2152015/16 ACADEMIC YEAR

INSTRUCTOR

Dr. Emmanuel A. CODJOE

INTRODUCTION AND OVERVIEW

• A quick tour of the course outline

• Other house-keeping issues

• What is to be expected? And what not to expect?

INTRODUCTION AND OVERVIEW

• What of the economy of Ghana? And how is this relevant to my undergraduate course in Economics?

• What current issues can you relate with in terms of the economy of Ghana?– Fiscal Deficit and Debt– Exchange rate and Inflation– Energy and “Dumsor”– Production and Unemployment, especially youth unemployment– Petroleum pricing and its effects– Etc

INTRODUCTION AND OVERVIEW

• In the last three decades, growth in GDP has been positive, averaging between 5 and 6 percent between 1984 to 2013.

• This period has also witnessed significant changes in the structure of the economy as well as the nature of economic activities – notable in changes in share of Agriculture, Industry and Services in GDP.

INTRODUCTION AND OVERVIEW

Figure 1: Trends in Real GDP and GDP per capita growth rates, 2007-12

INTRODUCTION AND OVERVIEW

Trends in Sectoral Contributions to GDP, 2006-12

INTRODUCTION AND OVERVIEW

• Other changes worthy of note are the growth of the financial services and information and communications technology sectors.

• Besides, there is a growing external sector because of Ghana’s growing economy and the consequent trade with the rest of the world.

• Some of the big players in the economy now come from the East, notably Asia and Middle East.

INTRODUCTION AND OVERVIEW

• Looking ahead in the coming weeks

• Any questions or comments

NATIONAL INCOME ACCOUNTING

MAIN OBJECTIVES OF THIS UNIT ON NATIONAL INCOME ACCOUNTINGWhy national income accounting?Who does this in the Ghanaian Context?How is this done in general and in the Ghanaian

context?What is its relevance?What shortcomings can be identified?

NATIONAL INCOME ACCOUNTINGWHY NATIONAL INCOME ACCOUNTING?

Numbers define our world – whether as individuals, organisations and governments.

Numbers tell us how well we are doing.

Economists and analysts depend on numbers to determine the well-being of an economy.

These numbers are usually termed leading indicators. E.g., GDP, unemployment, inflation, trade deficits, exchange rates.

NATIONAL INCOME ACCOUNTING

WHY NATIONAL INCOME ACCOUNTING?Every country needs to obtain a sense of how the

economy performs over time.

One way of achieving this is through the use of the national income accounts.

Thus the national income accounts is used to obtain a sense of the aggregate performance of the economy.

NATIONAL INCOME ACCOUNTING

WHY NATIONAL INCOME ACCOUNTING?

National income accounting refers to the set of rules and definitions for measuring economic activity in the aggregate economy.

In other words, how we go about measuring the total economic output of goods and services in an economy over a given period of time.

NATIONAL INCOME ACCOUNTING

NATIONAL INCOME ACCOUNTING

NATIONAL INCOME ACCOUNTING

WHO DOES THE ACCOUNTING IN GHANA?

The Ghana Statistical Service (www.statsghana.gov.gh)

Mandated to undertake the exercise at least once a year. In recent times the GSS provides quarterly estimates of the GDP.

NATIONAL INCOME ACCOUNTING

HOW IS THIS DONE?There are three main approaches

Income approachProduct approachExpenditure approach

In Ghana two approaches – output and expenditure – are used although the expenditure approach tends to be used most.

NATIONAL INCOME ACCOUNTING

HOW IS THIS DONE?

The output approach used in Ghana measures the value of goods and services produced, in terms of output, within the different sectors of the economy:

AgricultureIndustryServices

NATIONAL INCOME ACCOUNTINGHOW IS THIS DONE?The expenditure approach measures the value of

goods and services produced, in terms of expenditure, by the various institutional sectors:Households Government FinancialNon-financial and non-profit institutions serving

householdsTo these are added net exports (X – M)

Household Firms (production

Factor services

Goods

Investment(3)

Personal consumption(4)

Savings(3)

Imports(5) Exports(5)

(2)GovernmentSpendingTaxes(2) Government

Financial markets

Other countries

Wages, rents, interest, profits(1)

NATIONAL INCOME ACCOUNTINGThe Circular Flow

NATIONAL INCOME ACCOUNTINGThe Production Approach

NATIONAL INCOME ACCOUNTINGThe Expenditure Approach

NATIONAL INCOME ACCOUNTING

Distinguishing between GDP and GNPThe Gross in Gross Domestic Product reflects the

market value of final goods and services produced within a period, usually a year.

GDP refers to all final goods and services produced within a country’s borders.

GNP refers to final goods and services produced by nationals of a country.

In the case of developing countries, it is preferable to use GDP instead of GNP. Why?

NATIONAL INCOME ACCOUNTING

Some Useful Identities from National Income Accounting

Y ≡ C + I + G + X

Y ≡ C + S + T + M

Y ≡ (S-I) + (T-G) – (X-M)

NATIONAL INCOME ACCOUNTING

What is the Relevance of the Final Measure of GDP or GNP?

Leading indicator for policy making – formulation and subsequent evaluation of policy

Indicator of expanding opportunities within an economy

Policy facilitating growth => reduction in both unemployment and poverty

NATIONAL INCOME ACCOUNTING

What Shortcomings Can Be Identified?

Errors in Measurement and Unrecorded Activities

Inflation

Welfare NOT measured

Excludes other social indictors, such as quality of life, equity, environment, etc.

NATIONAL INCOME ACCOUNTING

Any Questions or Comments