Stock Market Development and Economic Growth: Empirical Evidence for Emerging Market Economies
International Journal of Economics, Finance and Management Sciences
Volume 2, Issue 2, April 2014, Pages: 171-181
Received: Mar. 17, 2014; Accepted: Apr. 9, 2014; Published: Apr. 10, 2014
Views 3784      Downloads 409
Authors
Abiy Hailemariam, School of Business Management, Dalian University of Technology, Dalian, 116024, China
Chi Guotai, School of Business Management, Dalian University of Technology, Dalian, 116024, China
Article Tools
Follow on us
Abstract
Contemporary economies of developing countries are changing due to rapid changes in the world economy. The economies of emerging market countries are witnessing changes in the composition of capital flows because world stock markets are expanding rapidly. Foreign direct investment and stock market boom are the indicators of the changing world economic order. The objective of this study is to examine the relationship between stock market development and economic Growth. Empirically, based on the data for 17 emerging market and 10 developed market economies during the 12 years’ period, from 2000 - 2011 using the generalized method of momentum (GMM) for dynamic panel data. To control for the country specific effect, the model is further estimated for the developed and emerging member economies. 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. The results also indicate robustly that stock market development is an important wheel for economic growth
Keywords
Stock Market Development, Economic Growth, Dynamic Panel, Emerging Market and Developed Market Economies
To cite this article
Abiy Hailemariam, Chi Guotai, Stock Market Development and Economic Growth: Empirical Evidence for Emerging Market Economies, International Journal of Economics, Finance and Management Sciences. Vol. 2, No. 2, 2014, pp. 171-181. doi: 10.11648/j.ijefm.20140202.19
References
[1]
Adajaski, Charles K.D. and Nicholas, B.Biekpe (2005) Stock Market Development and Economic Growth. The Case of Selected African Countries Working Paper, African Development Bank, 98, 117-201.
[2]
Arellano, M., and S. Bond, (1991) Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations, Review of Economic Studies, 58, 277-297.
[3]
Arellano, M. and O. Bover. 1995. “Another look at the instrumental variable estimation of error-components models.” Journal of Econometrics, 68, 29-51.
[4]
Arestis, Philip, Demetriades, Panicos, O. and Luintel, Kul B. (2001), Financial Development and Economic Growth: The Role of Stock Markets, Journal of Money, Credit and Banking, 33, 16-41.
[5]
Atje, R., and B. Jovanovic, (1993) Stock Markets and Development. European Economic Review, Vol. 37, 632-64.
[6]
Bagehot, (1873), A Description of Money Market with Currency Monopoly, Homewood. ILRichard, 1962.
[7]
Bahadur and Neupane, (2006), “Stock Market and Economic Development: a Causality Test, The Journal of Nepalese Business Studies, pp: 36-44.
[8]
Beck, T. and Levine, R. (2004) Stock markets, banks and growth panel evidence. Journal of Banking and Finance, 38, 423-442.
[9]
Bekaert, G., Harvey, C. and Lundblad, C. (2001) Emerging equity markets and economic development, Journal of Development Economics,66, 465-504.
[10]
Benchivenga, V. R. and Smith, B. D, (1991) Financial Intermediation and Endogenous Growth. The Review of Economic studies, Vol. 58, pp. 195-209.
[11]
Blundell, R., and S. Bond, (1998), Initial Conditions and Moment Restrictions in Dynamic Panel Data Models, Journal of Econometrics, 87: 115-143.
[12]
Caporale, Howells and Soliman, (2004), Stock Market Development and Economic Growth: A Casual Linkage, Journal of Economic Development, 29, PP:33-50.
[13]
Chen, Lee and Wong, (2004), Is Rate of Stock Returns a Leading Indicator of Output Growth? In Case of Four East Asian Countries. American Economic Review, 71, 545-564.
[14]
Christopoulos, D. and Tsionas, E. (2004), Financial development and economic growth: evidence from panel unit root and co-integration tests, Journal of Development Economics, 73, 55-74.
[15]
Comincioli, Brad (1996), “The Stock Market as a Leading Indicator: An Application of Granger Causality, The University Avenue Undergraduate Journal of Economics, Sample Issue.
[16]
Deidda, L. and Fattouh, B. (2002) Non-linearity between finance and growth, Economics Letters, 74, 339-45.
[17]
Demetriades, P. and Hussein, K. (1996) Does financial development cause economic growth? Time-series evidence from 16 countries, Journal of Development Economics, 51, 387-411.
[18]
Demirguc-Kunt, A. (1994)Developing Country Capital Structure and Emerging Stock Markets, Policy Research Working Paper, WPS 933, July.
[19]
Edison, H., Levine, R., Ricci, L. and Slok, T. (2002) International financial integration and economic growth, Journal of International Money and Finance, 21, 749-76.
[20]
Filer, Hanousek and Nauro, (1999), Do Stock Markets Promote Economic Growth? Working Paper No.267.
[21]
Graff, M. (2002) Causal links between financial activity and economic growth: empirical evidence from a cross country analysis, (1970-1990), Bulletin of Economic Research, 54, 119-33.
[22]
Greenwood, J., Jovanovich, B. (1990) Financial Development, Growth and the Distribution of Income Journal of Political Economy, Vol.98, pp.1076 - 1104.
[23]
Holtz-Eakin, D., Newey, W., and H. Rosen. (1989). "Estimating Vector Auto regression with Panel Data." Econometrica, Vol. 56, 1371-1395.
[24]
International Finance Corporation (1998). Emerging Stock Markets CD-ROM. (IFC Washington D.C.)
[25]
Islam, N. (1995). Growth Empirics: A Panel Data Approach. Quarterly Journal of Economics, Vol. 110: 1127-1170.
[26]
Kassimatis, K. and Spyrou, S. (2001) Stock and credit market expansion and economic development in emerging markets: further evidence utilizing co integration analysis, Applied Economics, 33, 1057-64.
[27]
Levine, R., and S.J. Zervos (1995) Stock Market Development and Long-Run Growth. World Bank Economic Review, Vol. 82, No. 4, 942-963.
[28]
Levine, R., Zervos , S, (1996) Stock Market Development and Long Run Growth, The World Bank Economic Review, Vol 10(2), pp.323-339.
[29]
Levine, Ross and Sarah Zervos, (1998) Stock Markets, Banks, and Economic Growth, American Economic Review 88:537-558.
[30]
Luintel, K., & Khan M. (1999). A quantitative reassessment of the finance-growth Nexus: Evidence from a Multivariate VAR. Journal of Development Economics, 60, 381-405.
[31]
Mauro, P. (2003), Stock returns and output growth in emerging and advanced economies, Journal of Development Economics, 71, 129-53.
[32]
Minier, J. (2003) Are small stock markets different? Journal of Monetary Economics, 50, 1593-602.
[33]
Mirakhor, and R.M. Lillanueva, (1990), Market Integration and Investment Barriers in Emerging Equity Markets, World Bank Discussion Paper, No. 216, 221-255.
[34]
Mishkin, Frederic S, (2001) The Economics of Money, Banking, and Financial Markets, 6thed. New York: Addison Wesley Longman.
[35]
Obstfeld, (1994), Risk-Taking, Global Diversification, and Growth, American Economic Review, 84 pp. 1310-1329. Papers financial policy and systems. No, 907, World Bank.
[36]
Pardy, R, (1992), Institutional Reform in Emerging Securities Markets, Policy Research Working paper
[37]
Paudel, N. P. (2005), Financial system and economic development. Nepal Rastra Bankin Fifty Years, Part -II,Financial System. Kathmandu: NRB.
[38]
Rajan, R.G., and Zingales, L. (1998) Financial Dependence and Growth. American Economic Review 88, 559-586.
[39]
Robinson, J. (1952) The Rate of Interest and Other Essays. London: MacMillan. Chapter the generalization of the general theory. pp. 34.
[40]
Rousseau, Peter and Wachtel, Paul (2000), Equity Markets and Growth: Cross Country Evidence on Timing and Outcomes, 1980- 1995, Journal of Banking and Finance, 24: 1933- 1957.
[41]
Schumpeter, J.A., 1911. The Theory of Economic Development. Harvard University Press, Cambridge, MA.
[42]
Spears, Annie, (1991) Financial Development and Economic Growth-Causality Tests, Atlantic Economic Journal, 19:66-74.
[43]
Stiglitz, J.E., and A. Weiss, (1981), Credit Rationing in Markets With Imperfect Information, American Economic Review, Vol. 71, 393-410.
[44]
World Development Indicators (2000) CD-ROM the World Bank, Washington D.C.
ADDRESS
Science Publishing Group
1 Rockefeller Plaza,
10th and 11th Floors,
New York, NY 10020
U.S.A.
Tel: (001)347-983-5186