Research On The Relationship Between Stock Market Development And Economic Growth

This study is aimed at determining the contributions of the Ghana stock market to the economic growth in Ghana from 1993 to 2015.This is necessitated by the concern as to whether a lean stock market like that of GSE with an average of 32 listed companies(within the period of study)with an average market capitalization of 7.66% of GDP can significantly exert the much-expected positive impact on total output.Four explanatory variables were specified in this study based on theoretical underpinning,market capitalization,stock turnover,number of listed companies and stock traded,these variables represent the depend variables whereas real gross domestic product(RGDP)was used as the independent variable.Stationarity test was conducted using Augmented Dickey Fuller unit root test,whiles Johansen Cointegration test was used to estimate the long-run equilibrium relationship among the variables.The Granger causality test was conducted in order to establish a causal relationship between the dependent and independent variables respectively.Empirical test results show that there is a bidirectional causality between economic growth(RGDP) and market capitalization of listed companies,whereas there is unidirectional causality between economic growth(RGDP)and stock turnover ratio,also,it was revealed that,there exist bidirectional causality between economic growth(RGDP)and the stock traded,there is a unidirectional causality between economic growth(RGDP)and number of listed companies on the exchange.From the analysis it was brought to light that there is a positive relationship between the variables identified and Real Gross Domestic Product but this effect will be evident in the long term in the economy of Ghana.The study recommends that,the government should re-establish confidence in the market through regulatory authorities by ensuring transparency,fair trading transactions and improve the market capitalization by encouraging more foreign investors to participate in the market and also to increase investment instruments such as derivatives,convertibles,swap and option in the market.