The role of stock exchanges in fostering economic growth. Effects of stock market development on economic growth. Does stock market development cause economic growth. Ghimire and giorgioni 20 argue that the impact of the stock market on economic growth depends on the variables chosen and the estimating methodologies. We find a strong correlation between overall stock market development and longrun economic growth. Stock market development and economic growth in belgium.
The dynamic panel model is estimated using the instrumental variables approach and reveals that stock market development positively influences growth directly when the turnover ratio turn is used, i. With economic growth gaining prominence in respect of development discourse, economists have focused on how to propel economies to higher states of economic growth. Stock market development represented through three indicators namely total stock value traded ratio vtr, market. The method of analysis is ordinary least square techniques. The study investigated the relationship between stock market development and economic growth in belgium using ardl approach with annual time series data from 1988 to 2012. Financial development, financial openness, and economic growth. The results also indicate robustly that stock market development is an important wheel for economic growth.
In the wake of substantial empirical evidence, recent decades have seen economists devoting considerable attention to the study of the interrelationship. To investigate that is there a significant relationship exists between stock market development and economic growth of pakistan. In what follows, section 2 discusses the empirical approach, including a a discussion of the measures of the stock market development and economic growth, and. Pdf impact of stock market development on economic. In the case of subsaharan africa, enisan and olufisayo 2009 observe that the stock market development and economic growth has a significant. This is because, for sustainable growth and development to take place, funds must be effectively mobilized and allocated to enable business and the economy harnesses their human, material and manager.
Introduction the relationship between financial sector development and real economic activity has been a debatable issue in theoretical and empirical research. The stock market, an important pillar of an economy, plays an essential role in the growth. The analysis provides support to the view that stock market development boosts economic growth, and influences capital structure decisions of firms. The adb economics working paper series is a forum for stimulating discussion and eliciting feedback on ongoing and recently completed research and policy studies undertaken by the asian development bank adb staff, consultants, or resource persons. The dynamic of foreign flows and stock market indicators in central and eastern emerging markets the relationship between stock market development and economic growth implies a dynamic analysis of foreign flows, growth rates and the stock market indicators in eu member countries hungary, latvia, lithuania, poland, romania, bulgaria and the eu candidate croatia. Quarterly data from 1989 to 2001 is analysed based on the null hypothesis that, as far as financial architecture is concerned, the development of the jse securities exchange has stimulated the countrys economic growth. Another question is that to investigate the dynamics of pakistans stock market since 2000. This study aims at augmenting the determinants of stock market development in the 3g countries so that policy makers can be aided for developing a functioning and stable stock market. In the current study, we argue that the stock market index is not a good measure of stock market size with regard to its association with economic growth. The influence of financial market development on economic. The role of stock exchanges in fostering economic growth and sustainable development 2.
More importantly, they found that stock market liquidity and banking. Therefore, stock market development and economic growth positively influence each other in the process of development. Stock market is an indicator of an economy financial health. Stock market development is proxied by stock market capitalization, stock market value traded and stock market turnover and economic growth is represented by gross domestic product gdp. As such, stock market development is an important ingredient for growth. The role of stock market development in economic growth. Empirical results are often tainted by a possible problem of selfselection bias. Stock market development and economic growth in sri lanka. Stock market development and economic growth salvatore capasso september 2006 abstract since the 1990s economists have devoted considerable attention to the study of the relationship between financial markets development and economic growth. Stock market performance, economic growth, causality test, shortrun and longrun dynamics 1. We find that stock market liquidity and banking development both predict longrun growth, capital accumulation, and productivity improvements. Wider research paper 2006102 stock market development and.
Stock market development, real gdp growth, toda and yamamoto causality test, india 1. The first group of studies has found a significant relationship between stock market development and economic growth e. It is important to understand the interplay between stock market and real economy to figure out the various channels through which financial markets drive economic growth. Financial development and economic growth in developing asia. After controlling for the initial level of gdp per capita, initial. Project muse stock market development and economic growth. The empirical results and discussion are provided in section 4 and section 5 presents concluding remarks.
The data suggest that stock market development is positively associated with economic growth. Possible determinants of stock market development and the effect of stock market development on the control variables are also analyzed through the vecm. Section 5 documents the historical context and the legislative character governing the stock exchange. Stock market development and economic growth econstor.
The result revealed that stock market volatility, inflation rate and interest rate had a positive relationship with economic growth having reported a coefficient value of 0. A bi directional causal relationship is also observed between real market capitalization ratio and economic growth. Most previous studies used the stock market index as a proxy in measuring the growth and development of the stock market in a country. Stock market development and economic growth in nigeria.
In particular, the emergence of stock markets with economic development is an intriguing. Since the 1990s economists have devoted considerable attention to the study of the relationship between financial markets development and economic growth. The results of this study support that the stock market performance plays a major role in economic growth in sri lanka. The mobilization of resources for national development has long been the crucial focus of development economists. This research investigates the effect of nigerian stock exchange market development on economic growth using a 20 year time series data from 19902010. The objective of this study is to investigate the role of stock market development on economic growth in africa. The results show that stock market development is an important factor for growth, but banking development contributes to growth more. They find that stock market liquidityas measured by stock trading relative to the size of the market and economy is positively and significantly correlated with current and future rates of economic growth, capital accumulation, productivity growth, even after controlling for economic and political factors. On stock market development, banks and economic growth in india pratap chandra biswal b. Financial development, financial openness, and economic. The argument is that any inference that financial liberalisation causes savings or investment or growth, or that financial intermediation causes growth.
The effects of stock market on economic growth and. Economists and other social scientists jealously guard their right to define concepts as they see fit. Stock market development and economic growth in emerging. Utilizing several econometric techniques, such as unit root test, cointegration test and granger causality test the study disaggregates stock market development into two components. The essence is to know the aspect of stock market development that is the main driver of growth in nigeria.
A new path of research came into the literature of financial development and economic growth, where the main focus is on the effects of stock market development. Levine and zervos empirically evaluate the relationship between stock market development and longterm growth. This paper examines the most recent findings in the theoretical and. The aim of this thesis is to empirically examine if stock market development in a sample of emerging countries assisted economic growth or not. The role of the stock market in economic development. In the long run, the study found evidence of bidirectional relationship between economic growth and stock market developments, with economic growth. Stock market development and economic growth in india. Evolution of stock market development and economic growth in africa the level of stock market development varies greatly in africa as shown in fig. Evidence from developing countries hamid mohtadi and sumit agarwal. This study will also capture the effect of interaction term between stock market and. The stock market and south africas economic development. An empirical analysis of stock market performance and economic. The assumption that there is a uniquely correct or at least a uniquely appropriate definition of economic growth, openly invites a very fundamental type of criticism.
This study found a negative and statistically significant relation between stock market development and economic growth. Objective of the study the study attempts to investigate the following objectives. However, there exists very little empirical evidence on the relationship between stock market development and long run economic growth. Based on the data on the market capitalisation to gdp for 2010, it is found that during this time, the market capitalisation to gdp was highest in south africa at 278 percent. Stock market development and economic growth in africa. It discusses the results of an empirical analysis between both variables and economic growth. Osama 2015 investigates the stock market development and economic growth in egypt from 2002q1 to 20q4 using vector autoregressive var model. The key findings of the study reveal that there exists statistically significant relationship between stock market development and economic growth both directly, as well as indirectly by boosting investment behavior. They operate in fully developed societies such as in north america and western europe, and in developing countries in africa, asia, the middle east and other world regions.
The study is predicated on the the puzzle of why there is such a large. Abstract this study examines the relationship between stock market development and economic growth for 21 emerging markets over 21 years, using a dynamic panel method. An assessment of nigerian stock exchange market development. In this article we explore causality relationship between stock market and economic growth based on the time series data compiled from 5 euronext countries belgium, france, portugal, netherlands and united kingdom for the period 1995.
Kamaiah abstract this paper examines the role of stock markets and banks in promoting economic growth in india. A few empirical studies have focused on the nexus between the. Atje and janovic 1993 examined the relationship between stock market development and growth in. Documents in econstor may be saved and copied for your. The determinants of stock market development in emerging. Wilson, geoff briscoe empirical analysis of human capital development and economic growth in european regions hiro izushi, robert huggins nonmaterial benefits of education, training and skills at a macro level andy green, john preston, lars erik malmberg. Using data on 49 countries from 1976 to 1993, the authors investigate whether measures of stock market liquidity, size, volatility, and integration in world capital markets predict future rates of economic growth, capital accumulation, productivity improvements. The results suggest that stock market development does play an important role in generating gains in terms of economic growth in the long run in the island. We use a new data set of stock market development indicators to argue that. The study addresses four basic aspects the link between stock market development and long term economic growth, the causal relationship between stock indices and major macro economic variables, the impact of stock market development on the capital structure of corporate firms, and the impact of stock market development on the saving and risk.
Financial innovation, stock market development, and. In particular, the emergence of stock markets with economic development is an. Similarly, using the ak model and twostage least squares regression analysis, wang 2002 concludes that there is no obvious correlation between chinas capital market development and economic growth. The study was designed to identify the role of stock exchange market to economic growth in tanzania. Stock markets, banks, and economic growth english abstract.
As such, the casual relationship between stock market development and economic growth is. The study measures the relationship between stock market development indices and economic growth. Panel data models play an important role in consequence of stock market development on economic growth in lowermiddle income regions. A complex relationship between stock market development, bank development and economic growth for 27 developing countries over the period from 1991 to 2007 years using rigorous panel var procedures is examined.
As the global equity markets have experienced their most explosive growth over the past decade, emerging equity markets have experienced an even more rapid growth, taking on an increasingly larger share of this global boom. How does stock market development affect the economic growth with special reference to the growth of pakistan. In particular, the emergence of stock markets with economic development is an intriguing and interesting aspect of such a relationship, and yet relatively unexplored. The link between stock market development and economic activity has always been the subject of considerable debate in the field of economics and it raises empirical question whether stock market development influences economic activity or whether it is a consequence of increased economic activity. The remainder of this paper is organized as follows. Financial market development has emerged as one of the policy levers central banks and governments use to target economic growth. It examines the causal linkage between stock market development, financial development and economic growth. The idea is that in the initial stages of economic development, the expansion of stock markets increases both the opportunity for risk sharing and the flow of information in the market. Arising from the mixed results in existing literature on the relationship between stock market development indicators and economic growth for both developed and developing countries, this study sets out to reexamine the relationship between stock. The results show that the relationship between the stock market development, proxied by the total market capitalization, and economic growth is negative. This result is consistent with harris 1997 finding that the stock market development generally does not contribute positively to economic growth in developing. The results also show that political risk, law and order, and bureaucratic quality are important determinants of stock market development because they enhance the viability of external finance. The series deals with key economic and development problems, particularly.
It also a determined the factors which hinder the swift growth of dar es salaam stock exchange market and the suggested measures to be taken by dse to promote economic development in tanzania. Stock market development and economic growth springerlink. An empirical analysis of stock market performance and. On the other hand, rousseau and wachtel 2000 and beck and levine 2003 show that stock market development is strongly correlated with growth rates of real gdp per capita. Pdf this study aims to provide further empirical evidence about the relationship between stock market development and economic growth by utilizing. Pdf stock market development and economic growth in. There are many studies dealing with the relationship between economic growth and stock market development on the sample of heterogeneous countries from the entire world. However, the recent global financial crisis leading to global economic meltdown has added new fuel to question the validity of any literature that concludes that stock market development can fuel economic growth. Nominal gdp values are used as a proxy for economic growth, and market capitalization ratio mcr is used as a proxy for stock market development. It uses annual data from a panel of 36 countries, of which 18 have stock markets, in africa over the period 19802010. Critical issues and challenges prepared by charles amo yartey and charles komla adjasi 1 authorized for distribution by george tsibouris august 2007 abstract this paper examines the economic importance of stock markets in africa.
Pdf the main purpose of this study is to examine the role of stock markets in economic growth for four asian countries namely bangladesh. In the developing and emerging markets like zimbabwe such evidence is almost zero with the exception of one study by madzivanyika 2008. The relationship between stock market development and economic growth falls into four categories which are 1 stock market led economic growth, 2 economic growth led stock market development. Evidence from three ceecs guglielmo maria caporale. Stock market development and economic growth unuwider. Research objectives the research objectives of the study are. Despite the establishment of the first stock exchange in zimbabwe in 1894, the. We find a strong correlation between overall stock market development and long run economic growth. The main objective of this study is to examine whether there is a longrun relationship between stock market performance and economic growth in. Crosscountry regressions suggest that there is a positive and robust association. The research question is to study how does stock market development affect the economic growth with special reference to the growth of pakistans stock market.
The granger causality tests reveal that stock indices lead changes in money supply and interest rate, rather than being led by them and thus provide evidence for semistrong form efficiency of. On stock market development, banks and economic growth in india. This study aims to provide further empirical evidence about the relationship between stock market development and economic growth by utilizing unbalanced panel data from some arab countries. Yet, there exists very little hard empirical evidence on the importance of stock markets development to longrun economic growth and almost none exists.
Financial development, financial openness, and economic growth this paper examines the importance of financial development and openness. The crux of this study is to investigate the nature and direction of the causal linkagebetween stock market development and economic growth. Can stock market development boost economic growth. The study examines stock market development and economic growth in brics, quarterly time series data for the period 1994qi to 2015q4 were sourced from world bank indicator. The effect of the stock exchange on economic growth.