Stock Market Performance and Economic Growth Nexus: A Panacea or Pain to Ghana?

International Journal of Research and Innovation in Social Science (IJRISS) | Volume V, Issue IV, April 2021 | ISSN 2454–6186

Stock Market Performance and Economic Growth Nexus: A Panacea or Pain to Ghana?

George Asumadu¹, Emmanuel Amo-Bediako^2
1Department of Accountancy and Accounting Information Systems, Kumasi Technical University, Ghana
²Department of Mathematics and Statistics, Kumasi Technical University, Ghana

Abstract: This study examined whether stock market performance instigates growth, using yearly data from the World Development Indicators and the Ghana Stock Exchange for the period 1990 to 2018. The Johassen co-integration and vector error correction model framework were applied to determine the long-run and short-run dynamics. The Granger causality test was used to estimate the link between the stock market and economic growth. The findings showed a statistically significant and negative long-run relationship between the stock market and the economic growth nexus. The Granger causality test results showed that there was no causality between stock market performance and economic growth. Hence, the study concluded that stock market performance does not promote growth in Ghana. The research provides pragmatic guidance to policymakers to focus their efforts on the information flow of exchange activities to the public space and start a nationwide informative tour to explain the roles and gains of investing in the exchange. Policymakers should also ensure that the exchange efficiency rate is activated by listing more firms.

Keywords: stock market, economic growth, performance, exchange rate, causality test

I. INTRODUCTION

Studies have clarified why some nations grow more rapidly than others and obtain resources distinctly (Feldmann, 2019; Lauka, 2018; Magnus, 2019; Carlos, 2012; Narcis Serra & Stiglitz, 2008). It is well documented that the growth rate invigorates a country’s effectiveness, dynamism, and recognition in the international spectrum. The assertion of stock market relations to growth began with Bagehot (1873), followed by Schumpeter (1911), who asserted that finance was crucial to economic growth. As far as nations are concerned and seen as the epicenter of growth, at any stage of developmental processes, both the private sector and government require long-term capital for their desired growth. Baumol (1965) stated that there was an expectation that the stock market would act like an alliance to permit the use of investment for future projects. Bencivenga and Smith (1991) revealed that when uncertainties are reduced, larger liquidity may decrease the rate of savings, which would impact growth. Obstfield (1994) and Devereux and Smith (1994) established that the stock market would positively impact economic growth by diversifying the risk, which was confirmed by Felicia Olokoyo et al. (2020).

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