Question

(c) Discuss the importance of the Ghana Stock Exchange to the economy.

Answer 1

There were developments in the stock markets all over the world in the past few decades in both developed and emerging economies.

Stock market performance contributes to economic growth by facilitating the accumulation of physical capital for investment in projects which improves productivity and output growth of the economy. Studies reveal a mutual impact that is financial sector development lead to economic growth and economic growth promotes financial sector development. Financial markets contribute to economic growth through savings and investment because the financial sector is the bridge which connects the savings with investment.

• Stock market allows a company to increase its shareholders. This will promote corporate governance which induces mangers to act in the interest of shareholders. This will result in efficient management, and thereby increase in output and growth. Growth in corporate sector leads to growth in the economy.
• Liquid stock markets facilitate quick and cheap transfer of securities as and when desired. This will help the investors to mitigate the risk in their investments. The reduction in the risk of investors encourages more investments.
• Liquid stock markets allow companies to raise capital easily which in turn improves the allocation of capital.
• Stock markets induce the investors for more investments by allowing risk diversification