Abstract
This study used panel data covering 27 years to investigate the causality between regional stock exchange development and economic growth in the West African Economic and Monetary Union (WAEMU) countries. We performed a homogeneous Granger non-causality with an autoregressive distributed lag model (ARDL) and Markov-switching analysis, using six indicators for the stock and financial market and six for control. The results showed a close economic relationship between WAEMU countries and causality from the regional stock exchange, which supports the supply leading hypothesis. The causality was confirmed in the short and long run, depending on the variable. The causal relationships that support the demand-driven hypothesis were recorded from the economic growth for four market measurements.
Highlights
Financial market conditions are usually linked to a country’s political and economic conditions
Financial Markets Access Index (FMA), increased Financial Markets Depth Index (FMD), and Financial Development Index (FD) will contribute to West African Economic and Monetary Union (WAEMU)’s economic growth in the long run. These observations suggest that the development of Bourse Régionale des Valeurs Mobilières (BRVM) and its stock exchange play an important role in boosting the economies of WAEMU countries
The relationship between economic growth and financial development remains a hot topic for extensive research and debate
Summary
Financial market conditions are usually linked to a country’s political and economic conditions. The eight member states of WAEMU are all developing countries, which are still considered low-income countries; the impact of the regional stock exchange on their economy becomes important. Another factor that should not be overlooked is what WAEMU countries have in common: they are all post-colonial states that are still under monetary control. Given the interest in financial markets, the specifics of developing markets, and WAEMU countries, this study attempts to assess the existence and nature of the relationship between BRVM development and economic growth in WAEMU countries.
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