FINANCIAL MARKET DEVELOPMENT, DEMOCRACY AND ECONOMIC GROWTH IN GHANA

Abstract

ABSTRACT There is a raging debate in literature regarding financial market development, democracy and economic growth nexus. In the Ghanaian context, only the relationship between financial market and development and economic growth has been investigated without considering the possible influence of democracy in the process. The objectives of the study were in three folds: to examine the long and short run effect of financial market development on economic growth; the long and short run effect of democracy on economic growth; and the moderating role of democracy on the financial market development and economic growth nexus in Ghana. Annual data from 1960 to 2019 was employed and the autoregressive distributed lag model and the ordinary least sqaure regression were used as the analytical tools. The study controlled for gross recurrent expenditure, capital, and labour. The study found that financial market development does not affect economic growth in the short run but has positive effect on economic growth in the long run. Also, democracy had a significant positive relationship on economic growth in both the short run and the long run. There was found the evidence that democracy moderates the relationship between financial market development and economic growth. The study among other things recommended that the government of Ghana should seek to continuously improve the democratic stance of Ghana so as to affect the financial market and to set the foundation for productivity and economic activities to thrive.