This study contributes to the general body of knowledge and research\nworks in the area of the role of finance in economic growth and development\nwith specific reference to the effect of capital market development on\neconomic growth in Ghana. This study was motivated by the fact that some\nstudies have reported negative effects of capital markets on economic growth\nin some developing nations, despite its expected positive effect on growth\nand development. The study is a multiple linear regression based on\nquarterly time series data spanning from 1991:1 to 2011:4. Exploratory data\nanalysis was used to ensure that the basic assumptions of regression analysis\nwere verified and resolved. Structural Equation Modeling (SEM) through\nPath Analysis (i.e. Layered Regression Technique) was used to identify the\npossible causal relationship between GDP growth and capital market\ndevelopment, as well as other causal effects in the model. The study shows\nthat GDP growth is linearly related to by the independent variables in the\nmodel. There is also a positive bi-directional relationship between economic\ngrowth and capital market development. However, the stronger effect is from\ncapital market development to economic growth. The study recommends that\ndeveloping countries should place greater emphasis on financial sector\ndevelopment with specific focus on capital markets development to promote\neconomic growth.
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