IMPACT OF GHANA STOCK EXCHANGE DEVELOPMENT ON ECONOMIC GROWTH

The main purpose of this paper was to empirically examine the long- run and short-run dynamic impacts of the Ghana Stock Exchange development on economic growth and to ascertain direction of causality between the two variables. The study employed Vector Error Correction Models (VECM) and Granger Causality Models on monthly time series economic data between 2000 and 2012 to analyze the short-run and long run relationships between development of the Ghana Stock Exchange and economic growth in Ghana. The study found that the development of the Ghana Stock Exchange had both short-run and long–run impacts on economic growth and that there was a bi-directional causality between stock market development and economic growth. This study provides evidence in support of the mutual impact or feedback hypothesis, which argues that financial sector development stimulates economic growth and economic growth promotes financial sector performance as found by a few studies in other contexts. The study recommends that government create the enabling environment to stimulate development of the financial system to promote high economic expansion through technological changes, product development, and services innovation. This in turn, will create high demand on the financial arrangements and services. As banking institutions effectively respond to these demands, these changes will stimulate a higher economic performance. It is recommended also, that Government encourages competition in the financial sector and micro finance development as these will improve and increase outreach and access to credit at a lower cost and to contemporaneously, implement appropriate fiscal and monetary policy regimes to stimulate stock market development. For further studies, an analysis of the long run and short-run impact of Ghana Stock exchange performance on macroeconomic variables is recommended, as this will help establish the nature of relationship between macroeconomic activities and stock market development……………….