Why Free Why Free Markets Fail in Markets Fail in

GhanaGhanaByBy

Kwasi Osei-Kusi ‘09Kwasi Osei-Kusi ‘09

University FellowUniversity Fellow

Faculty Mentor: Dr. R.A. BlewettFaculty Mentor: Dr. R.A. Blewett

Do Free Markets exist in Do Free Markets exist in Ghana?Ghana?

Free tradeFree trade Not too much government interferenceNot too much government interference Privatization of SOEsPrivatization of SOEs Open marketsOpen markets Entrepreneurial abilityEntrepreneurial ability

Have Free Markets Failed in Have Free Markets Failed in Ghana?Ghana?

GDP $2480 (ppp adjusted)GDP $2480 (ppp adjusted) HIPCHIPC Ranks 135 by UNDP HDRRanks 135 by UNDP HDR

What theories explain the What theories explain the failure of free markets in failure of free markets in Ghana?Ghana? Political InstabilityPolitical Instability CorruptionCorruption Culture – laziness, non-western business Culture – laziness, non-western business

attitudes etcattitudes etc Biases in world system of tradeBiases in world system of trade ColonialismColonialism

Modern theoriesModern theories

Inability to create capital (unproductive Inability to create capital (unproductive assets or “dead capital”)assets or “dead capital”)

Low financial developmentLow financial development

Inability to create capitalInability to create capital Too many assets in extra legal sectorToo many assets in extra legal sector Insufficient documentation of ownership rightsInsufficient documentation of ownership rights Entry to formal systems difficultEntry to formal systems difficult

EffectsEffects-Limits use of assets-Limits use of assets-Difficult to obtain financing with extra legal assets-Difficult to obtain financing with extra legal assets-Hinders flow of information about assets-Hinders flow of information about assets

Low financial Low financial developmentdevelopment

A large unbanked populationA large unbanked population Underdeveloped secondary marketsUnderdeveloped secondary markets

EffectsEffects

-Inefficient means of channeling funds-Inefficient means of channeling funds

-Limits availability of credit-Limits availability of credit

-Discourages innovation etc.-Discourages innovation etc.

SummarySummary Free markets exist in Ghana but to a significant Free markets exist in Ghana but to a significant

extent, have failedextent, have failed

Theorized reasons for this include corruption, Theorized reasons for this include corruption, colonialism etccolonialism etc

Modern analysis shows that inability to create Modern analysis shows that inability to create capital and low financial development explain capital and low financial development explain this failurethis failure