Abstract
Stock market development is now well known for the role that it plays in generating gains in terms of economic growth. It has therefore become very important to now scrutinize the main driving forces which actually cause the expansion of stock market development. To do so, the paper scrutinizes the both the macroeconomic and institutional determinants of stock market development in Mauritius during the period 1989-2016 through a dynamic VECM. The results indicate that macroeconomic factors such as economic growth, banking sector development, stock market liquidity and gross fixed capital formation are important drivers of stock market development in the island. Additionally, political stability, rule of law, government effectiveness, voice accountability and control of corruption also play a key role in terms of enhancing stock market development.
Highlights
The question of whether stock market development boosts economic growth has gained substantial attention, and it is a widely accepted fact that a well-functioning financial system is crucial for the development of an economy
Since most studies concede that stock market development generates economic growth (Levine and Zervos, 1996, 1998; Demirguc-Kunt and Levine, 1996a; Rajan and Zingales, 1996; Arestis et al, 2001; Beck and Levine, 2004; Wong and Zhou, 2011; Demirhan et al, 2011), it would be crucial to identify the main drivers of stock market development as these would stimulate equity growth, which would in turn help trigger a much-needed economic growth
The results indicate that the stationarity is rejected in favor of a unit root for all the variables
Summary
The question of whether stock market development boosts economic growth has gained substantial attention (both theoretically and empirically), and it is a widely accepted fact that a well-functioning financial system is crucial for the development of an economy. The vital question that solicits our attention would be what the main drivers of stock market development are. There is relatively little theoretical and empirical work that has been carried out to scrutinize the determinants of stock market development, especially in developing countries. The determinants of stock market development can be broadly classified into two categories: Macroeconomic determinants and institutional determinants. Macroeconomic determinants focus on factors such as income level, savings, investments, financial development and inflation
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