Performance of the Ghana Stock Exchange and economic growth
Date
2017-05
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Abstract
Stock markets in developing countries have been likened to “casinos” as a
result of the general perception that they do not contribute to economic growth. Very
few studies have tried to specifically examine the situation in Ghana with varying
results. Most studies employing OLS have found a positive relationship between the
variables whiles those that have employed ADRL or VEC, have often found a
negative stock market and growth nexus in Ghana. Research, however, shows that,
OLS regression analysis involving economic and financial data could suffer spurious
regression due to presence of unit root in most of these variables.
Therefore, to examine the effect of stock market performance on economic
growth in Ghana, the study employed VECM and Granger causality test, using market
capitalisation ratio as stock market indicator, and GDP as economic growth indicator.
Results from the VECM regression analysis showed that, the Stock Market
contributes positively to economic growth only in the short-run. In the long-run, the
Exchange does not affect economic growth in Ghana.
The Granger causality test, on the other hand, revealed a unidirectional causal
link between market capitalisation ratio and GDP, running from development in the
size of the Stock Market to economic growth. The study also found the service sector
to be the only sector benefiting from the Exchange’s performance with agriculture and
industry being unaffected.
Description
Thesis submitted to the Department of Business Administration, Ashesi University College, in partial fulfillment of Bachelor of Science degree in Business Administration, May 2017
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Keywords
Ghana Stock Exchange, economic growth, stock market, Gross Domestic Product (GDP)