IDEAS home Printed from https://ideas.repec.org/p/agd/wpaper/19-095.html
   My bibliography  Save this paper

Growth Effects of Financial Market Instruments: The Ghanaian Experience

Author

Listed:
  • Ekundayo P. Mesagan

    (Pan-Atlantic University, Lagos, Nigeria)

  • Isaac A. Ogbuji

    (University of Lagos, Nigeria.)

  • Yasiru O. Alimi

    (University of Lagos, Nigeria)

  • Anthonia T. Odeleye

Abstract

This study analyses the growth effects of financial market instruments in Ghana between 1991 and 2017. We use the ARDL bounds testing approach to analyse data on real GDP per capita, monetary policy rate, treasury bill rate, stocks traded, bank credits, stock turnover, market capitalisation, foreign direct investment, and gross investment. Findings show the existence of a long-run relationship between both short- and long-term financial market indicators and economic growth. Also, results confirm that long-term financial instruments perform better than the short-term instruments in boosting the country’s economy in the short-run, while in the long-run, both short-term and long-term financial indicators positively impact economic growth in Ghana. We recommend that the bank of Ghana should consider lowering the bank rate further from the current annual rate of 16.0% to enhance bank credits, boosts domestic investment, and improve growth in the long-run.

Suggested Citation

  • Ekundayo P. Mesagan & Isaac A. Ogbuji & Yasiru O. Alimi & Anthonia T. Odeleye, 2019. "Growth Effects of Financial Market Instruments: The Ghanaian Experience," Working Papers of the African Governance and Development Institute. 19/095, African Governance and Development Institute..
    • Handle: RePEc:agd:wpaper:19/095
    as

    Download full text from publisher

    File URL: http://www.afridev.org/RePEc/agd/agd-wpaper/Growth-Effects-of-Financial-Market-Instruments-The-Ghanaian-Experience.pdf
    File Function: Revised version, 2019
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Bonfiglioli, Alessandra & Mendicino, Caterina, 2004. "Financial Liberalization, Banking Crises and Growth: Assessing the Links," SSE/EFI Working Paper Series in Economics and Finance 567, Stockholm School of Economics.
    2. Simplice A. Asongu & Nicholas M. Odhiambo, 2019. "Challenges of Doing Business in Africa: A Systematic Review," Journal of African Business, Taylor & Francis Journals, vol. 20(2), pages 259-268, April.
    3. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    4. Nicholas Odhiambo, 2009. "Interest Rate Liberalization and Economic Growth in Zambia: A Dynamic Linkage," African Development Review, African Development Bank, vol. 21(3), pages 541-557.
    5. Beck, Thorsten & Levine, Ross, 2004. "Stock markets, banks, and growth: Panel evidence," Journal of Banking & Finance, Elsevier, vol. 28(3), pages 423-442, March.
    6. Stephen Asante & Daniel Agyapong & Anokye M. Adam, 2011. "Bank Competition, Stock Market and Economic Growth in Ghana," International Journal of Business Administration, International Journal of Business Administration, Sciedu Press, vol. 2(4), pages 33-41, November.
    7. Naceur, Samy Ben & Ghazouani, Samir, 2007. "Stock markets, banks, and economic growth: Empirical evidence from the MENA region," Research in International Business and Finance, Elsevier, vol. 21(2), pages 297-315, June.
    8. Cooray, Arusha, 2010. "Do stock markets lead to economic growth?," Journal of Policy Modeling, Elsevier, vol. 32(4), pages 448-460, July.
    9. Ekundayo Peter Mesagan & Mike I. Nwachukwu, 2018. "Determinants of Environmental Quality in Nigeria: Assessing the Role of Financial Development," Econometric Research in Finance, SGH Warsaw School of Economics, Collegium of Economic Analysis, vol. 3(1), pages 55-78, September.
    10. Nicholas Odhiambo, 2010. "Interest rate reforms, financial deepening and economic growth in Tanzania: a dynamic linkage," Journal of Economic Policy Reform, Taylor and Francis Journals, vol. 13(2), pages 201-212.
    11. Narayan, Paresh Kumar & Narayan, Seema, 2013. "The short-run relationship between the financial system and economic growth: New evidence from regional panels," International Review of Financial Analysis, Elsevier, vol. 29(C), pages 70-78.
    12. Ross Levine, 1997. "Financial Development and Economic Growth: Views and Agenda," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 688-726, June.
    13. Raymond K DZIWORNU & Dadson AWUNYO-VITOR, 2013. "Stock Exchange Performance and Economic Growth in Ghana: Is There A Causal Link?," Asian Journal of Empirical Research, Asian Economic and Social Society, vol. 3(9), pages 1152-1165.
    14. Eregha, Perekunah Bright & Mesagan, Ekundayo Peter, 2017. "The Emergence of Inclusive Growth: Issues, Challenges and Policy Options for Nigeria," MPRA Paper 95671, University Library of Munich, Germany, revised 15 Aug 2019.
    15. Alfred A. Haug, 2002. "Temporal Aggregation and the Power of Cointegration Tests: a Monte Carlo Study," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 64(4), pages 399-412, September.
    16. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    17. Vittorio Grilli & Gian Maria Milesi-Ferretti, 1995. "Economic Effects and Structural Determinants of Capital Controls," IMF Staff Papers, Palgrave Macmillan, vol. 42(3), pages 517-551, September.
    18. Levine, Ross & Zervos, Sara, 1996. "Stock Market Development and Long-Run Growth," The World Bank Economic Review, World Bank, vol. 10(2), pages 323-339, May.
    19. Erasmus L. Owusu & Nicholas M. Odhiambo, 2014. "Stock market development and economic growth in Ghana: an ARDL-bounds testing approach," Applied Economics Letters, Taylor & Francis Journals, vol. 21(4), pages 229-234, March.
    20. Alessandra Bonfiglioli & Caterina Mendicino, 2004. "Financial liberalization, bank crises and growth: Assessing the links," Economics Working Papers 946, Department of Economics and Business, Universitat Pompeu Fabra.
    21. Erasmus L Owusu, 2016. "Stock Market and Sustainable Economic Growth in Nigeria," Economies, MDPI, vol. 4(4), pages 1-13, November.
    22. Raymond K. DZIWORNU & Dadson AWUNYO-VITOR, 2013. "Stock Exchange Performance and Economic Growth in Ghana: Is There A Causal Link?," Asian Journal of Empirical Research, Asian Economic and Social Society, vol. 3(9), pages 1152-1165, September.
    23. MESAGAN Ekundayo & OLUNKWA Ndubuisi & YUSUF Ismaila, 2018. "Financial Development And Manufacturing Performance: The Nigerian Case," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 13(1), pages 97-111, December.
    24. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    25. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-438, July.
    26. Erasmus L. Owusu & Nicholas M. Odhiambo, 2014. "Financial liberalisation and economic growth in Nigeria: an ARDL-bounds testing approach," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 17(2), pages 164-177, June.
    27. Peter Ekundayo Mesagan & Akanni Ismaila Yusuf & Azubuike Isaac Ogbuji, 2019. "Natural resource endowment and output growth: How crucial is deficit financing in managing resource-rich African economies?," Journal of Social and Economic Development, Springer;Institute for Social and Economic Change, vol. 21(2), pages 353-369, December.
    28. Felix Rioja & Neven Valev, 2014. "Stock markets, banks and the sources of economic growth in low and high income countries," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 38(2), pages 302-320, April.
    29. Paresh Narayan & Russell Smyth, 2005. "Trade Liberalization and Economic Growth in Fiji. An Empirical Assessment Using the ARDL Approach," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 10(1), pages 96-115.
    30. Ekundayo P. Mesagan & O. Yasiru Alimi & K. Adekunle Adebiyi, 2018. "Population Growth, Energy Use, Crude Oil Price, and the Nigerian Economy," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 2, pages 115-132.
    31. Nili, Masoud & Rastad, Mahdi, 2007. "Addressing the growth failure of the oil economies: The role of financial development," The Quarterly Review of Economics and Finance, Elsevier, vol. 46(5), pages 726-740, February.
    32. Mesagan Peter Ekundayo & Amadi Nkem Agatha, 2017. "The Efficiency Market Theory: A Case of Commercial Banks Stocks in Nigeria," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(2), pages 583-587, December.
    33. Sims, Christopher A, 1972. "Money, Income, and Causality," American Economic Review, American Economic Association, vol. 62(4), pages 540-552, September.
    34. Ekundayo P. Mesagan & Olorunfemi Y. Alimi & Ismaila A. Yusuf, 2018. "Macroeconomic Implications of Exchange Rate Depreciation: The Nigerian Experience," Managing Global Transitions, University of Primorska, Faculty of Management Koper, vol. 16(3 (Fall)), pages 235-258.
    35. Erasmus L. Owusu & Nicholas M. Odhiambo, 2014. "Financial liberalisation and economic growth in Nigeria: an ARDL-bounds testing approach," Journal of Economic Policy Reform, Taylor and Francis Journals, vol. 17(2), pages 164-177, April.
    36. Odhiambo, Nicholas M., 2009. "Energy consumption and economic growth nexus in Tanzania: An ARDL bounds testing approach," Energy Policy, Elsevier, vol. 37(2), pages 617-622, February.
    37. Bolbol, Ali A. & Fatheldin, Ayten & Omran, Mohammed M., 2005. "Financial development, structure, and economic growth: the case of Egypt, 1974-2002," Research in International Business and Finance, Elsevier, vol. 19(1), pages 171-194, March.
    38. Wakeel A. Isola & Ekundayo Peter Mesagan, 2016. "Determinants of Pharmaceutical Industry’s Performance in Nigeria," Managing Global Transitions, University of Primorska, Faculty of Management Koper, vol. 14(3 (Fall)), pages 267-282.
    39. Eregha, Bright & Mesagan, Ekundayo & Ayoola, Olawale, 2015. "Petroleum Products Prices and Inflationary Dynamics in Nigeria," MPRA Paper 70251, University Library of Munich, Germany.
    40. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross & Maksimovic, Vojislav, 2000. "Financial structure and economic development - firm, industry, and country evidence," Policy Research Working Paper Series 2423, The World Bank.
    41. Enisan, Akinlo A. & Olufisayo, Akinlo O., 2009. "Stock market development and economic growth: Evidence from seven sub-Sahara African countries," Journal of Economics and Business, Elsevier, vol. 61(2), pages 162-171.
    42. Durusu-Ciftci, Dilek & Ispir, M. Serdar & Yetkiner, Hakan, 2017. "Financial development and economic growth: Some theory and more evidence," Journal of Policy Modeling, Elsevier, vol. 39(2), pages 290-306.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Isaac Azubuike Ogbuji & Ekundayo Peter Mesagan & Yasiru Olorunfemi Alimi, 2020. "The Dynamic Linkage between Money Market, Capital Market and Economic Growth in Ghana: New Lessons Relearned," Econometric Research in Finance, SGH Warsaw School of Economics, Collegium of Economic Analysis, vol. 5(2), pages 59-78, December.
    2. Ismaila Akanni Yusuf & Agatha Nkem Amadi & Mohammed Bashir Salaudeen, 2020. "Effects of Risk Culture and Appetite on Effective Risk Management in Nigerian Banks: Case Study of United Bank for Africa Plc," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 6(2), pages 81-87, June.
    3. Ismaila Akanni Yusuf & Mohammed Bashir Salaudeen & Isaac Azubuike Ogbuji, 2022. "Exchange Rate Fluctuation and Inflation Nexus in Nigeria: The Case of Recent Recession," Journal of Economic Impact, Science Impact Publishers, vol. 4(1), pages 81-87.
    4. Olukunle Samuel Olaniran & Olusola Olakunle Ogunjinmi, 2022. "Modelling the Impacts of Agricultural Outputs and its Components on Human Mortality Rate in Nigeria," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 11(1), pages 146-160, January.
    5. Olorunfemi Yasiru Alimi & Akinola Christopher Fagbohun & Mohammed Abubakar, 2021. "Is population an asset or a liability to Nigeria’s economic growth? Evidence from FM-OLS and ARDL approach to cointegration," Future Business Journal, Springer, vol. 7(1), pages 1-12, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Isaac Azubuike Ogbuji & Ekundayo Peter Mesagan & Yasiru Olorunfemi Alimi, 2020. "The Dynamic Linkage between Money Market, Capital Market and Economic Growth in Ghana: New Lessons Relearned," Econometric Research in Finance, SGH Warsaw School of Economics, Collegium of Economic Analysis, vol. 5(2), pages 59-78, December.
    2. Polat, Ali & Shahbaz, Muhammad & Ur Rehman, Ijaz & Satti, Saqlain Latif, 2013. "Revisiting Linkages between Financial Development, Trade Openness and Economic Growth in South Africa: Fresh Evidence from Combined Cointegration Test," MPRA Paper 51724, University Library of Munich, Germany, revised 25 Nov 2013.
    3. Pradhan, Rudra P. & Arvin, Mak B. & Bahmani, Sahar & Hall, John H. & Norman, Neville R., 2017. "Finance and growth: Evidence from the ARF countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 66(C), pages 136-148.
    4. Durusu-Ciftci, Dilek & Ispir, M. Serdar & Yetkiner, Hakan, 2017. "Financial development and economic growth: Some theory and more evidence," Journal of Policy Modeling, Elsevier, vol. 39(2), pages 290-306.
    5. Mai, Nhat Chi, 2019. "Stock Market And Economic Growth In Vietnam," OSF Preprints de8zq, Center for Open Science.
    6. , Aisdl, 2019. "Stock Market And Economic Growth In Vietnam," OSF Preprints ucbhp, Center for Open Science.
    7. Ifuero Osad Osamwonyi & Abudu Kasimu, 2013. "Stock Market and Economic Growth in Ghana, Kenya and Nigeria," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 4(2), pages 83-98, April.
    8. Manuel Ennes Ferreira & João Dias & Jelson Serafim, 2022. "Stock Market and Economic Growth: Evidence from Africa," Working Papers REM 2022/0228, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    9. Md. Qamruzzaman & Jianguo Wei, 2018. "Financial Innovation, Stock Market Development, and Economic Growth: An Application of ARDL Model," IJFS, MDPI, vol. 6(3), pages 1-30, August.
    10. Okuyan Hasan Aydın, 2022. "The Nexus of Financial Development and Economic Growth Across Developing Economies," South East European Journal of Economics and Business, Sciendo, vol. 17(1), pages 125-140, June.
    11. Muhammad Shahbaz & Ijaz Ur Rehman & Ahmed Taneem Muzaffar, 2015. "Re-Visiting Financial Development and Economic Growth Nexus: The Role of Capitalization in Bangladesh," South African Journal of Economics, Economic Society of South Africa, vol. 83(3), pages 452-471, September.
    12. Bashiri Behmiri, Niaz & Pires Manso, José R., 2012. "Does Portuguese economy support crude oil conservation hypothesis?," Energy Policy, Elsevier, vol. 45(C), pages 628-634.
    13. Erasmus L Owusu, 2016. "Stock Market and Sustainable Economic Growth in Nigeria," Economies, MDPI, vol. 4(4), pages 1-13, November.
    14. Sin-Yu Ho, 2018. "Determinants of economic growth in Hong Kong: The role of stock market development," Cogent Economics & Finance, Taylor & Francis Journals, vol. 6(1), pages 1510718-151, January.
    15. Pan, Lei & Mishra, Vinod, 2018. "Stock market development and economic growth: Empirical evidence from China," Economic Modelling, Elsevier, vol. 68(C), pages 661-673.
    16. Yusuf, Ismaila Akanni & Mesagan, Ekundayo Peter & Amadi, Agatha Nkem, 2020. "Effect of financial deepening on stock market returns: The case of military and democratic post-SAP regimes in Nigeria," BizEcons Quarterly, Strides Educational Foundation, vol. 6, pages 3-21.
    17. Chor Foon Tang & Salah Abosedra, 2020. "Does Financial Development Moderate the Effects on Growth Volatility? The Experience of Malaysia," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 14(4), pages 361-381, November.
    18. Ahmed, Monir Uddin & Nurul Hossain, A.K.M. & Hasanuzzaman, Syed, 2015. "Exploring the depth of energy penetration in economic advancement: Perspective of Bangladesh," Renewable and Sustainable Energy Reviews, Elsevier, vol. 49(C), pages 1033-1047.
    19. Rudra P. Pradhan & Mak B. Arvin & John H. Hall & Sahar Bahmani, 2014. "Causal nexus between economic growth, banking sector development, stock market development, and other macroeconomic variables: The case of ASEAN countries," Review of Financial Economics, John Wiley & Sons, vol. 23(4), pages 155-173, November.
    20. Pradhan, Rudra P. & Arvin, Mak B. & Norman, Neville R., 2015. "Insurance development and the finance-growth nexus: Evidence from 34 OECD countries," Journal of Multinational Financial Management, Elsevier, vol. 31(C), pages 1-22.

    More about this item

    Keywords

    Financial Market Instruments; Market Capitalisation; Economic Growth; ARDL Bounds Test.;
    All these keywords.

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:agd:wpaper:19/095. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Asongu Simplice (email available below). General contact details of provider: https://edirc.repec.org/data/agdiycm.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.