Abstract
It is widely accepted that a well-functioning financial system is crucial for the development of the economy. As such, it becomes crucial to investigate what the determinants of stock market development are. This would enable policy makers to take the necessary steps to enhance stock market development, which will in turn trigger a much-needed economic growth. This paper therefore aims at identifying the main macroeconomic determinants of stock market by using a dynamic Panel Vector Error Correction Model within a sample of Sub Saharan African countries. The results suggest that economic growth, banking development, stock market liquidity, investment and macroeconomic stability are key determinants of stock market development in the region. Interestingly, the study finds that savings have a significant and detrimental impact on the growth of equity markets in the region. Moreover, results also indicate that economic growth indirectly stimulates stock market development in the short run.
Highlights
The importance of financial development on growth has been stressed since very long back [1] [2] [3]
The vital question that solicits our attention is: what are the main drivers of stock market development? since stock market development is seen to boost economic growth, it would be crucial to identify the main determinants of stock market development as they would stimulate equity growth, which would in turn help trigger a much-needed economic growth
This study tries to investigate what the potential macroeconomic determinants of stock market development are in a sample of Sub Saharan African countries for the years 1989-2016
Summary
The importance of financial development on growth has been stressed since very long back [1] [2] [3]. In the recent past empirical studies have shifted their focus on whether stock market development in particular boosts economic growth. Several studies emphasized the importance of the services provided by the stock markets in boosting economic growth either directly or indirectly. Matadeen development is believed to enhance economic growth. Most empirical researches concede the importance of stock market development in generating gains in terms of economic growth [7]-[14]. The vital question that solicits our attention is: what are the main drivers of stock market development? 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
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