Stock market capitalisation and economic growth: empirical evidence from Africa

Abstract

In spite of the fact that financial markets play a significantly positive role in influencing the rate at which economies grow, the existing empirical evidences on the nexus between stock market capitalisation and economic growth remain mixed. This study, therefore, attempt to provide further evidence on the relationship between stock market capitalisation and economic growth using recent data from a sample of African countries with well-functioning stock markets. A dynamic panel approach is employed with a view to assessing the relative impact of stock market capitalisation on the economic growth in Africa. The results from the study show that enhancing stock market capitalisation by a marginal average of 10.0% induces growth by 5.4% in countries studied. The positive and significant relationship between stock market capitalisation and economic growth as demonstrated in this study provides encouraging signals for African countries to explore stock markets as a potential avenue for expediting economic growth. This, therefore, suggests the dire need for policymakers in Africa to direct efforts towards the implementation of policy measures that will encourage the development of stock markets to spur economic growth.