Epsilon Open Archive

Abstract

This thesis consists of four independent papers. Paper I examines the effect of environmental policy on economic growth in a small open economy in a neoclassical framework with pollution as an input. We show that the effect of environmental policy on growth is stronger in the open economy case relative to the closed economy model if the country has strong aversion to pollution and thus serves as a net exporter of capital in the international capital market. On the other hand, if the agents in the economy have low aversion to pollution and thus import capital, the effect of environmental care on growth is stronger in the closed economy relative to the open economy. Paper II analyses the effect of asymmetry in factor endowments between resource-rich and resource-poor countries on equilibrium bias of technology development and adoption possibilities. First, we show that the bias in equilibrium technology in the resource-poor North is determined by its relative abundance of human capital and physical capital. Secondly, we show that the equilibrium bias in technology in the resource abundant South is dependent positively (negatively) on the relative abundance (scarcity) of skilled (unskilled) labour and the relative abundance (scarcity) of physical (natural) capital in the North. This force is dampened by the relative scarcity of skilled labour and physical capital in the South. These forces drive wage inequality, high cost of capital and skill technology mismatch in the South, all of which are bad for growth. These effects cumulatively, explains part of the observed differences in growth performance between resource -rich and resource-poor countries. Paper III investigated the relationship between long run economic growth in Ghana and natural resource abundance using time series econometric techniques. Using a number of indicators that could proxy for resource abundance in eight alternative specifications, the results rejected the resource curse hypothesis. Paper IV provides an empirical analysis of the factors accounting for inflation dynamics in Ghana using the bounds test and other econometric approaches. We find that real output, nominal exchange rate, broad money supply, nominal interest rate and fiscal deficit play a dominant role in the inflationary process in Ghana.