Stock market development and economic growth in Ghana: an ARDL-bounds testing approach

Abstract

This article examines the relationship between stock market development and sustainable economic growth in Ghana. The study employs the recently developed ARDL-bounds testing approach and multidimensional stock market development proxies to examine this linkage. The article finds that in the long run, stock market developments and capital account liberalization policies have no positive effect on economic growth in Ghana. This finding supports the numerous past studies, which have reported negative or inconclusive results on the effects of stock market development on economic growth. The article, therefore, concludes that it is the increase in credit to the private sector, rather than stock market development that drives the real sector development in Ghana.

Keywords:

• economic growth
• stock market development
• ARDL-bounds testing approach
• Ghana

JEL Classification:

• C32
• G15
• O16
• O47

This article is based on my doctoral research at the University of South Africa (UNISA). The usual disclaimer applies.

Notes

¹ The Economic Community of West African States (ECOWAS) is made up of 15 countries in the West African sub-region, namely: Benin, Burkina Faso, Cape Verde, Cote d’Ivoire, Gambia, Ghana, Guinea-Bissau, Guinea, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone and Togo.

² This factor will be used instead of dummies to represent the effect of capital account liberalization policies in Ghana. A similar approach was employed by Caprio et al. (2001)  and Laeven (2003).