Journal of Emerging Trends in Economics and Management Sciences: Home

Abstract:
The study investigated the relationship between trade openness and trade tax revenue in Ghana. Unrestricted Cointegrating and Vector Error-Correction Models were estimated to examine the static and dynamic long-run effects as well as the short-run dynamics of the system and the speed of adjustment to the long-run equilibrium. The findings indicated that trade openness positively affect trade tax revenue both in the long run and short run. The Granger causality test results revealed a uni-directional relationship between trade openness and trade tax revenue implying that trade openness causes trade tax revenue but trade tax revenue does not cause trade openness. The evidence from the forecast error variance decomposition also suggests that the variables that influenced trade tax revenue significantly were trade openness and official development assistance while the source of least forecast error variance of trade tax revenue is the innovations of real effective exchange rate. Opening up a country to foreign trade has been a key focus of market-oriented policy reforms of almost every country. This paper examines the impact of trade openness on trade tax revenue in Ghana. This paper gives insight to people on the theory of trade openness and trade tax revenue and the factors affecting it in the Ghanaian context. It exposes other areas of trade openness policy on trade tax revenue that needs attention for further research. Ministry of Trade and Industry would be to promote non-traditional exports to increase trade volume. Increase in trade volumes leads to increase in trade openness which increases trade tax revenue.

Keywords: trade openness, trade tax revenue, cointegration, variance decomposition

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