"The Study on the Impact of Capital Market on Economic Growth in Sri Lanka "

Abstract

Stock market is an indicator of an economy financial health. It indicates the mood of investors in a country. As such, stock market development is an important ingredient for economic growth. The stock market is a common feature of a modern economy and is expected to promote economic growth and development of an economy. This paper examines the impact of stock market development on Economic growth in Sri Lanka using data over the period 2009 – 2013 monthly data (60 months data). The main objective of this study is to examine the impact of stock market development on Economic growth in Sri Lanka. Towards achieving the objective of this paper, the data on market capitalization, All Share Price Index and Turnover ratio are collected from the CSE Data Library; while that of GDP information has been compiled from the CBSL annual reports and publications. Where Capital Market is the independent variable and Economic growth is the dependent variable. The studies on the relationship between stock market development and economic growth have generally taken the market capitalization (MKT), All Share Price Index (ASPI), turnover ratio (TRN) representing the stock market development and gross domestic product (GDP) as an proxy for economic growth and it has generally examined the relationship between stock market development and economic growth by using Johansen-Juselius cointegration test, maximum eigen test and multiple regression. As the data was gathered, it was entered and used to EViews statistical package to analyses the data. This study found that stock market development has a positive effect on economic growth.