Stock Market Development And Economic Growth Economics Essay
This survey through empirical observation explored how the development of the stock markets in nine SADC states affected economic growing through the usage of three stock market indexs, viz. : market capitalisation as a per centum of GDP, the value of portions traded as a per centum of GDP and the turnover ratio, while besides commanding for a figure of variables which are said to hold an impact on economic growing. Second, this survey through empirical observation explored the macroeconomic determiners of stock market development. Both theoretical accounts were estimated utilizing a random effects approach within a pooled panel informations model over the period 1980-2011.
The consequences from the first theoretical account found that stock market development is so positively associated with economic growing. Furthermore, the impact of bank development on growing is tested and a important impact on the growing is reported. The consequences from the 2nd theoretical account which explored the determiners of stock market development found all the indexs of being undistinguished determiners of stock market development. These consequences besides suggest that fiscal mediators are substitutes instead than complements for the development of the stock market in the SADC parts.
A more developed stock market may supply liquidness to take down the cost of foreign capital indispensable for development, particularly in states that can non bring forth sufficient domestic nest eggs ( Bencivenga et al. ( 1996 ) and Neusser and Kugler ( 1998 ) ) . Ij add-on, the stock markets provide portfolio variegation, enabling single houses to prosecute in specialised production, with ensuing efficiency additions ( Acemoglu and Zilibotti ( 1997 ) ) . It is clear that an active stock market is an of import engine of economic growing. Public policy and international assistance directed toward presenting and furthering such markets while making an institutional model that is free of corruptness and inordinate authorities control should hold a big impact in increasing long-run growing rates and economic wellbeing in much of the universe ( Perotti and new wave Oijen ( 1999 ) ) .
Overall, it can be said that the empirical consequences found in this paper support the theoretical literature in that they suggest that the development of the stock market promotes economic growing because it is said to cut down both the liquidness and productiveness dazes. In position of the consequences presented above, the findings of this paper have some of import policy deductions for emerging states such as those in the SADC part. First, the huge bulk of the authoritiess of emerging states tend to concentrate their attending chiefly on the banking sector. As such this paper suggests that authoritiess should play a more active function in furthering stock market development so as to assist develop the fiscal system as a whole and non merely the banking sector. Second, policy shapers should look to advance good quality fiscal mediators and other fiscal establishments that are seen to complement the development of the stock market and therefore economic growing. The survey calls for new policies to be implemented in the SADC states to promote more participants to increase the dynamism of the local stock markets. In peculiar, the policies should be geared towards more local and foreign investors & A ; acirc ; ˆ™ engagement every bit good as the addition in the figure of naming companies. Furthermore, authoritiess should advance stock market liquidness by for case propagating cognition to the populace of the benefits of puting in stock markets ( NZue 2006 ) . These inducements would advance both domestic and foreign investings to perforate the domestic economic systems, and therefore assist pull huge benefits from these beginnings of capital.
Restrictions of the survey
This survey is non without its defects. As such it is of import to observe that foremost we encountered informations restrictions in the sense that non all the states under survey had the relevant time-series informations. This is partly due to the fact that many of the stock exchanges are in their early being and as such a complete panel dataset could non be obtained for the coveted old ages. Second, it is of importance to observe that the informations required for such a survey is difficult to come by for many of the states and as a consequence Seychelles and Mozambique had to be omitted from the survey due to a deficiency of available informations for their stock exchanges. Finally, the method employed has some serious restrictions in that pooled panel informations techniques give all states, whether little or big an equal weighting and therefore assumed to be homogenous. Furthermore, pooling informations with the same parametric quantities over clip and across states, which is seen to be common in most panel informations methods, is based on the premise that there is independency across arrested development. This is seen to be a really restrictive premise that may merely keep in utmost scenarios ( Baltagi, 2001:51 ) . Despite these restrictions, the method employed in this survey was the best suited to the available dataset in an attempt to obtain a meaningful consequence.
Areas for farther research
Much work remains to be done in an attempt to better understand the relationship between stock market development and economic growing. For illustration, although this paper sheds visible radiation on the function of the stock market towards economic growing, it does non analyse the single exchanges individually, nor examine the province of the state in footings of its preparedness for stock market development. Furthermore, one could perchance derive a better apprehension of this relationship shared between stock markets and economic growing by following a more complex panel co-integration theoretical account, and concentrating on a selected scope of emerging markets where information is available.