Abstract
The study investigates the relationship between stock market development and economic growth in the Southern African Development Community (SADC) region for the period 1993-2017. The controversy around the stock market development and economic growth nexus is of concern to the SADC which has been experiencing retarded growth while their stock markets are at different levels of development. To establish the relationship among variables of interest, the study used the Auto Regressive Distributive Lag (ARDL) model. The results revealed that there is bi-directional causality both in the short and long run between stock market development and economic growth. The findings further show that trade openness and investment significantly determine stock market development and economic growth in the long run. The result calls for SADC member countries to develop policies that enhance economic growth as well as improving stock market development.
Highlights
There has been great interest in investigating the relationship between financial sector development and economic growth
The results found no evidence of long run causality running from stock market development to economic growth
The results further show that trade openness and investment significantly determine stock market development and economic growth
Summary
There has been great interest in investigating the relationship between financial sector development and economic growth. The theoretical genesis of this association is found in the early discussions of Bagehot (1873) He contended that the financial system plays an important role in enabling the mobilization of capital and economic growth. The view that stock market developments drive economic growth is based on the understanding that development on the stock market feeds into consumption and investment decisions made by individuals and firms (Maposa and Muma, 2017; Popoola et al, 2017). The majority of countries in Africa adopted financial sector reforms to liberalise their financial systems as well as to enhance their non-bank financial institutions and capital markets (Kapaya, 2020; Osaseri and Osamwonyi, 2019; Qamruzzaman and Wei, 2018; Naik and Padhi, 2015). There are a number of stock market development indicators, yet there has been hardly any systematic effort at documenting stylized facts about African stock markets (Komla and Amo, 2007)
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