STOCK MARKET PERFORMANCE AND ECONOMIC GROWTH: EVIDENCE FROM GHANA
Date
2014-10-12
Authors
APIO, ALFRED TUNYIRE
Journal Title
Journal ISSN
Volume Title
Publisher
University of Cape Coast
Abstract
This study empirically examines the relationship between stock market
performance and economic growth in Ghana using quarterly time series data from
1991 to 2012 for four stock market performance indicators, namely; stock market
capitalization ratio, stock market turnover ratio, total value traded ratio and the
Ghana Stock Exchange market index with three other control variables. The study
employed the Johansen and Juselius (1990) multivariate cointegration technique
and vector error correction model to investigate the long and short-run
relationships amongst the variables. The standard Granger causality test is
performed to establish the direction of causality. The impulse response functions
(IRFs) and forecast error variance decomposition (FEVD) are used to assess
shocks and the relative importance of each variable in the system.
The results indicate a positive and significant relationship between stock
market performance and economic growth. The Granger causality results suggest
a unidirectional causality in general from stock market performance to economic
growth. This substantiates the supply leading finance hypothesis. The IRFs and
the FEVD results reinforce the positive link between stock market performance
and economic growth. The study concludes that to tap into the growth enhancing
capacity of the Ghana Stock Exchange, the government should initiate policies to
promote the supply (tax incentives to companies to list on the GSE) of and
demand (using the GSE as a source of finance for all government projects) of
securities. This would ensure continuous and sustained economic growth in
Ghana.