Bond market development and economic growth nexus in developing countries: a GMM approach

Abstract

PurposeThis study examines the nexus of bond market development and economic growth from 2015 to 2022.Design/methodology/approachThe system-generalized method of moments (GMM) is employed on economic growth, government market capitalization, corporate market capitalization, bond yield, interest rate spread, trade openness and investment level.FindingsThe findings show that the government bond market, corporate bond capitalization and bond yield positively impact the gross domestic product (GDP). The results equally reveal a causal link between the corporate bond market, bond yield and GDP.Research limitations/implicationsGovernments should emphasize creating, developing and sustaining bond markets in the economies of developing countries to boost economic activity by promoting structural transformation. Policymakers should improve the implementation of existing rules and regulations while complementing them with new ones since well-developed bond markets provide alternative sources of financing that make economies financially resilient. Policymakers should encourage the issuance of corporate bonds to enhance the efficiency of the capital markets and mobilize funds for economic growth stimulation. Governments and corporations should diversify their sources of funding into the bond markets since the bond yields are favorable to economic growth.Originality/valueEarlier studies presented arguable results on the bond market development and economic growth nexus. Several findings indicate a positive link; others give a negative link between bond market development and economic growth. Some show causal directions, while other reveal none. The contradictory results motivate research. This research results contribute to the literature in that the government bond market, corporate bond capitalization and bond yield positively impact the GDP of developing nations.