The Dynamic Linkage between Money Market, Capital Market and Economic Growth in Ghana: New Lessons Relearned

Isaac Azubuike Ogbuji; Ekundayo Peter Mesagan; Yasiru Olorunfemi Alimi

doi:10.2478/erfin-2020-0004

Isaac Azubuike Ogbuji Department of Finance, University of Lagos, Nigeria
Ekundayo Peter Mesagan School of Management and Social Sciences, Pan-Atlantic University, Nigeria
Yasiru Olorunfemi Alimi Department of Economics, Lead City University, Nigeria

DOI: https://doi.org/10.2478/erfin-2020-0004

Keywords: Financial Development, Money Market, Capital Market, Economic Growth

Abstract

This study is a comparative analysis of the effects of money and capital markets on the Ghanaian economy covering the period from 1991 to 2017 using the dynamic Auto Regressive Distributed Lag (ARDL) framework. Empirical results confirmed the existence of a unique and stable long-run relationship between the money market, capital market and economic growth. In respect of money market indicators, findings confirmed that monetary policy and treasury bills rate have had negative but significant impact on growth in the short- and long-run respectively. More so, total liquidity negatively and significantly influenced the Ghanaian economy both in the short- and in the long run. Both market capitalization and total value of stock traded, as proxies of capital market, had positive and significant effects on short-run growth, while both indicators as well as stock market turnover negatively and insignificantly affected long-run growth. This means that capital market exerts a short-run impact on the country's economy, while money market exerts both short- and long-run impacts. The lesson relearned is that the money market propels the Ghanaian economy better than the capital market.

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