CHAPTER ONE
INTRODUCTION
Ghana is a country with a land area of 228,000 square kilometers, located in the West African sub-region with a population of 21.7 million (2004) that grows at an annual rate of 2.4%. Ghana has a national per capital income of $298 as of 2002 while the annual GDP growth was 4.3% from 1990-2000, rising to 4.9 for the period 2000-2004.(world development indicators 2006). At independence in 1957, Ghana had one of the strongest economies in Africa with a high annual domestic growth rate of about 6% as well as substantial foreign exchange reserves.
Since the early 1960s, there has been debate over the appropriate trade policy for developing countries (Ishrat & Rashid, 1996). The contention has been between free market advocates and trade protectionists. While the free market proponents support an outward-looking, export-oriented trade regime, the trade protectionists settle for an inward-looking system. They both, nevertheless, agree that industrialization should be the main economic development strategy.
Advocates of free trade believe that it encourages the free movement of and allocation of factors of production. They surmise that individuals need to have the unrestricted access to and the power to dispose of the key factors of production (land, labor, entrepreneurship and capital). In arguing for free trade, David Ricardo (1815) formulated the idea of comparative costs, today called comparative advantage. Comparative advantage?a very subtle idea?is the main basis for most economists' belief in free trade today. The idea is this: a country ...