The dynamics of the development process resemble the kuznets. It would need a prolonged fall in share prices to change consumer spending. We use a new data set of stock market development indicators to argue that. It provides a platform where developing and emerging economies interact on an. Flammang applies this framework to discuss cyclical development, differences in market and planned systems, and the philosophical roots of his ideas. Beck and levine 2004 investigate the impact of both stock markets.
Since the 1990s economists have devoted considerable attention to the study of the relationship between financial markets development and 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. We must, therefore, find indicators of market development that are independent of stock prices. First, it constructs more measures or criteria of stock market development than any previous study. To investigate the role of financial intermediaries on economic growth. Stock market development and economic growth in nigeria. Sustained and inclusive economic growth, infrastructure.
We do find evidence that stock market development can cause currency appreciation, which may confound studies that use dollar denominated measures of economic growth. 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. In this article, i examine data from countries with varying degrees of economic development and argue that developed financial markets are an essential ingredient of longrun economic growth. Per capita growth rate versus 1960 gdp per capita correlation with the starting. It should be noted that the flip side of the increased attractiveness of debt financing was the failure of the equity market in. The research presented here focuses on four issues. The first group of studies has found a significant relationship between stock market development and economic growth e. Recent oecd analysis projects that global growth is set to slow from 3. Abstract the stock market is a common feature of a modern economy and it is reputed to perform some necessary functions, which promote the growth and development of the economy. As such, stock market development is an important ingredient for growth. Stock market development and economic growth in nepal. The economic growth has been measured by real gdp per capita, and stock market.
This paper examines the empirical relationship between stock market development and economic growth in nepal over the period of 22 years from 1993 to 2014. Jul, 2017 this paper examines the empirical relationship between stock market development and economic growth in nepal over the period of 22 years from 1993 to 2014. Impact of stock market on economic growth of emerging nations doi. The economic growth has been measured by real gdp per capita, and. Reed university of alabama july 11, 2011 abstract in this paper, we examine the impact of nancial market development on capital accumulation and in. In particular, we explore this issue in a setting in which. The further analysis of the data has been made with regression analysis. The stock market, monetary policy, and economic development edgar a. The argument here is that if economic growth is a function of stock market. 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. First, it is not my contention that all financial market activities have a positive impact on economic growth. To identify the direction and nature of the causality between stock market development and economic growth. It shows that over 28 percent of the total changes in economic growth rate are explained by the included exogenous variables.
The result further established a unidirectional causality running from stock market to economic growth. This paper shows that stock market liquidity and banking development both positively predict. Capital market development and longrun economic growth. Interaction between stock market development and economic growth. The table 3 shows the regression results for the impact of stock market liquidity on economic growth in jordan.
Share prices can rise or fall depending on a number of. But, in addition, as the experience of the late 1990s has been further analyzed, recognition of the necessity of financial sector development in the course of economic growth has increased. Documents in econstor may be saved and copied for your. The influence of financial market development on economic. The effect of stock market development on economic growth. Economic growth in a cross section of countries robert j.
The aim of this thesis is to empirically examine if stock market development in a sample of emerging countries assisted economic growth or not. Determinants of stock market development over the last twenty years much focus has been on the impact of financial development i. Pdf relationship between economic growth and stock market. Project muse stock market development and economic. These measures, ranked for each country, can be used for intercountry comparisons of the level of stock market development. Inclusive and sustained economic growth can improve. Organisation for economic cooperation and development. Making stock markets work to support economic growth implications for governments, regulators, stock exchanges, corporate issuers and their investors this study provides critical observations on the state of key global equity markets as recent developments have put into question their efficiency and effectiveness in facilitating capital formation.
Relationship between economic growth and stock market development article pdf available in african journal of business management 416. Ghossoub university of texas at san antonio robert r. Oecd ilibrary making stock markets work to support. Stock market is an indicator of an economy financial health. 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. Evidence from 32 countries do stock index futures affect.
Pdf stock market development and economic growth in nepal. The stock market, monetary policy, and economic development. 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. Theoretical background this paper asks if financial development especially stockmarket develop ment affects the level andor the growth rate of economic activity. Therefore, stock market development and economic growth positively influence each other in the process of development. Stock market development and economic growth in india. Stock market liquidity and economic growth in nigeria. Evidence from developing countries abstract the purpose of this study is to investigate the interaction between stock market. This paper shows that stock market liquidity and banking development both positively predict growth, capital accumulation, and productivity improve. Stock markets, banks, and economic growth by ross levine and sara zervos do wellfunctioning stock markets and banks promote longrun economic growth. The above theoretical arguments primarily revolved around two major empirical questions. The results also indicate robustly that stock market development is an important wheel for economic growth. Atje and janovic 1993 examined the relationship between stock market development and growth in. 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.
Jan 14, 2010 this paper fills this lacuna by using grangercausality tests and finds little evidence of a causal relationship going from stock market development to economic growth. It is a common postulation that without a functional stock exchange market, the capital market may be very illiquid and unable to attract investment. The impact of stock market development on economic growth. Stock market development and economic growth in emerging.
Pdf stock market development and economic growth in. 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 results show that stock market development is an important factor for growth, but banking development contributes to growth more. 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. It uses annual data from a panel of 36 countries, of which 18 have stock markets, in africa over the period 19802010. Stock markets, corporate finance, and economic growth share page. The role of the stock market in economic development.
Financial development, growth, and the distribution of income. One intermediary in the market that operates as a rallying point for the overall activities is the stock exchange market. 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. Other documents emphasize the need for structural transformation. Pdf relationship between economic growth and stock.
With economic growth gaining prominence in respect of development discourse, economists have focused on how to propel economies to higher states of economic growth. 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. Possible determinants of stock market development and the effect of stock market development on the control variables are also analyzed through the vecm. Theory evidence and policy proposal for another development strategy. Theoretical background this paper asks if financial development especially stock market develop ment affects the level and or the growth rate of economic activity. Financial market development has emerged as one of the policy levers central banks and governments use to target economic growth. The role of stock markets utilizing time series methods and data from five developed economies, we examine the relationship between stock market development and economic growth, controlling for the effects of the banking system and stock market volatility. The determinants of stock market development in emerging.
Gayi, head, special unit on commodities suc, until his retirement in. 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. Section 5 documents the historical context and the legislative character governing the stock exchange. The mobilization of resources for national development has long been the crucial focus of development economists. Resource abundance and economic development unuwider. This study examines the interaction between stock market developments and economic growth in a sample of 12 african countries using a panel var approach with data from 197920. The longrun and shortrun elasticities were estimated by the use of autoregressive distributed lag ardl bounds testing approach for cointegration analysis. Impact of stock market on economic growth of emerging. Northholland stock markets and development raymond atje and boyan jovanovic new york university, new york, usa 1. Stock market development and economic growth unuwider. The objective of this study is to investigate the role of stock market development on economic growth in africa. Stock market development and economic growth in sri lanka. Does stock market promote economic growth in nigeria. Stock market liquidity and economic growth in recent times, there has been a growing concern on the role of stock market liquidity on economic growth and vice versa levine and zervos, 1996.
For example, after the 1987 stock market crash share prices fell 25% in a week, it did not cause a fall in economic growth. The impact of stock market liquidity on economic growth in jordan. The present study provides more evidence on the linkages between stock market and economic growth, both in their levels and their volatilities, in three ceec countries, namely the czech republic, hungary and poland those with the highest market capitalisation in the region. Stock market development and economic growth in belgium. More importantly, they found that stock market liquidity and banking. Sep 29, 2006 for all these reasons, there is certainly reduced risk of crisis. The results of this study support that the stock market performance plays a major role in economic growth in sri lanka. 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. The econometric framework is a bivariate vargarch 1,1 model including. European economic forecast autumn 2019 european commission. Development policies and income inequality in selected developing regions. The impact of stock market liquidity on economic growth in.
Working paper series policy research working papers. Stock markets, corporate finance, and economic growth. Commodity markets, economic growth and development acknowledgments the commodities and development report 2017 is a joint publication prepared by unctad and the fao. Stock market development and economic growth in africa. In recognition of the importance of the stock market in economic development, many developing countries have launched stock exchanges during the past few decades.
Thus, implying that the stock market is a significant factor in determining nigerias economic growth. This study examines whether stock market promotes economic growth in nigeria. 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. Stock prices and economic growth european central bank. This study therefore examines whether stock market development promote growth in nigeria. Since earnings growth should be closely related to overall economic growth, this will make it look like increases in market capitalization preceded and, therefore, caused economic growth even if the true link ran in the reverse direction. Stock market liquidity and economic growth in nigeria 1980. This paper examines the most recent findings in the theoretical and.
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