Is stock market development a spur to poverty reduction? Empirical evidence from selected sub-Saharan African countries

Abstract

ABSTRACT In this study, the relationship between stock market development and poverty reduction is examined in sub-Saharan African countries during the period 1993–2019. Three proxies of stock market development were used, namely stock market capitalization, stock market traded value and stock market turnover ratio, thereby leading to three separate model specifications. A battery of panel data estimation techniques was used in the study to examine the existence of cross-sectional dependence. Furthermore, the second-generation panel unit root test and panel cointegration test were used alongside the first-generation tests to examine this linkage. Contrary to some of the previous studies, the results of the panel least squares, fully modified ordinary least squares and dynamic ordinary least squares show that stock market development has no significant impact on poverty reduction in sub-Saharan countries during the period under study. These results apply irrespective of the proxy used to measure the level of stock market development. The results were also corroborated by the heterogenous non-Granger causality test, in which a prima facie causal flow was found from poverty reduction to stock market development when stock market turnover ratio was used as a proxy. Policy implications are discussed.