Did Capital Market Development and Financial Depth Contribute to Growth? Evidence from European Financial Integration

2019 ◽  
Vol 27 (4) ◽  
pp. 506-518
Author(s):  
Mazhar Mahmood ◽  
Kashif Ur Rehman
Keyword(s):  
Stock Market ◽  
Capital Market ◽  
Risk Sharing ◽  
Financial Integration ◽  
Trade Openness ◽  
Market Development ◽  
Stock Market Development ◽  
Financial Depth ◽  
Short Run ◽  
The Impact

This study investigates the impact of financial depth and capital market development on the growth of European nations. Financial depth is important if the benefits of financial integration are to be realized. In fact, financial depth is a channel that promotes growth and risk sharing and curbs macroeconomic volatility. Panel data of 17 European nations from 1970 to 2013 were taken and results were obtained through the Pool Mean Group Estimation technique. Our results show that, for European nations, financial depth and stock market development contributed to long-term growth. However, the contribution of financial depth outweighs that of stock market development. Moreover, it was observed that in the case of Hungary and Ireland, capital market development and financial depth contributed to short-term growth. Trade openness was found to be significant for growth in the cases of Austria and Finland while financial depth and trade openness were found to be significant for Germany and Switzerland. In conclusion, in the short-run, financial depth contributed more to growth than stock market development. Therefore, the role of financial depth in enhancing growth can be said to be more persistent than that of stock market development.

scholarly journals The macroeconomic drivers of stock market development: evidence from Hong Kong

2019 ◽  
Vol 12 (2) ◽  
pp. 185-207 ◽  
Author(s):  
Sin-Yu Ho ◽  
Nicholas M. Odhiambo
Keyword(s):  
Hong Kong ◽  
Stock Market ◽  
Inflation Rate ◽  
Banking Sector ◽  
Trade Openness ◽  
Market Development ◽  
Content Type ◽  
Stock Market Development ◽  
Banking Sector Development ◽  
Short Run

Purpose The purpose of this paper is to examine the macroeconomic drivers of stock market development in Hong Kong during the period 1992Q4-2016Q3. Specifically, it investigates the impact of banking sector development, economic growth, inflation rate, exchange rate, trade openness and stock market liquidity on stock market development. Design/methodology/approach This paper uses quarterly time-series data covering the period 1992Q4-2016Q3, which have been obtained from various reliable sources. The study uses the autoregressive distributed lag bounds testing procedure to identify both the long- and short-run macroeconomic drivers of stock market development in Hong Kong. Findings We find that banking sector development and economic growth have positive impacts on stock market development, whereas the inflation rate and the exchange rate have negative impacts on stock market development both in the long and short run. In addition, the results show that trade openness has a positive long-run impact but a negative short-run impact on stock market development. Originality/value Despite the phenomenal growth of stock market in Hong Kong, there are, to the best of the authors’ knowledge, no relevant studies on the macroeconomic drivers of stock market development in Hong Kong. Therefore, this paper endeavours to enrich the literature by examining the macroeconomic drivers of stock market development in Hong Kong during the period 1992Q4-2016Q3.

scholarly journals RELATIONSHIP BETWEEN FOREIGN DIRECT INVESTMENT AND STOCK MARKET DEVELOPMENT IN A SMALL SOUTHERN AFRICA ECONOMY

2020 ◽  
Vol 17 (2) ◽  
Author(s):  
Duduzile Ngobe ◽  
◽  
Emenike Kalu ◽  
Keyword(s):  
Foreign Direct Investment ◽  
Stock Market ◽  
Capital Market ◽  
Direct Investment ◽  
Market Development ◽  
Causality Test ◽  
Stock Market Development ◽  
Money Market Funds ◽  
Long Run ◽  
Short Run

This paper investigates the relationship between foreign direct investment and stock market development in a small southern African economy. Specifically, the paper analyses long-run, short-run and causal relationships between foreign direct investment and stock market development in Eswatini for the 1990 to 2018 periods. Results of preliminary analyses of the variable show existence of positive skewness, fat-tailed, non-normal distribution, and I(1) order of integration for the foreign direct investment and stock market return series. Estimates from the ARDL model indicate evidence of a positive and statistically insignificant long-run relationship between foreign direct investment and stock market development in the kingdom of Eswatini. But in the short-run, there exist no relationship between foreign direct investment and stock market development in Eswatini. Estimates from Granger causality test do not show any evidence of causal relationship between foreign direct investment and stock market development in Eswatini. We recommend amongst others that capital market authorities should establish measures to increase the number of listings in the market so as boost investment options. In addition, there should be massive domestic investor-education on benefits of financing projects with a combination capital market funds, which has long-term tenor, and money market funds, which are of short-term nature.

scholarly journals Stock Market Development And Economic Growth: The Case Of Mauritius

2011 ◽  
Vol 8 (2) ◽  
Author(s):  
Baboo M Nowbutsing ◽  
M. P. Odit
Keyword(s):  
Economic Growth ◽  
Stock Market ◽  
Stock Exchange ◽  
Market Development ◽  
Financial Health ◽  
Stock Market Development ◽  
Long Run ◽  
Short Run ◽  
Two Measures ◽  
The Impact

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 growth. The stock exchange of Mauritius is fairly new compared to many countries. This paper examines the impact of stock market development on growth in Mauritius. A time series econometric investigation is conducted over the period 1989 -20067. We analyse both the short run and long run relationship by constructing an ECM. Two measures of stock market development namely size and liquidity are used. We define size as the share of market capitalization over GDP and liquidity as volume of share traded over GDP. We found that stock market development positively affect economic growth in Mauritius both in the short run and long run.

scholarly journals BANKING INDUSTRY CONCENTRATION AND NET INTEREST MARGINS (NIMS) IN PAKISTAN

2013 ◽  
Vol 15 (2) ◽  
pp. 384-402 ◽  
Author(s):  
Ijaz Hussain
Keyword(s):  
Stock Market ◽  
Commercial Banks ◽  
Banking Sector ◽  
Operating Cost ◽  
Industry Concentration ◽  
Market Development ◽  
Stock Market Development ◽  
Interest Margins ◽  
The Impact ◽  
Bank Soundness

This paper uses bank level data of 26 commercial banks for the period 2001–2010 to explore determinants of net interest margins of commercial banks of Pakistan. Based on results of this study, past net interest margins, bank soundness, operating cost, industry concentration, relative market share, inflation, real depreciation and industrial growth have statistically significant and positive impact while diversification, change in bank size, lagged liquidity, stock market development have dampening effects on net interest margins. However, impact of ownership, GDP and credit market development is statistically insignificant. Our regression results suggest that stock market development as means of alternative source of finance contributes to reduction in net interest margins while the impact of banking sector development on breaking banking cartels and bringing net interest margins down had been insignificant. Exchange rate adjustments, rate of inflation and growth of the industry also cannot be ignored in management of net interest margins. Incentives for bank executives and managers to ensure efficiency in operating costs, reduction in the premium charged for bank soundness, diversification of bank activities and passing on the scale efficiencies to both depositors and borrowers can also play role to bring interest margins down to accelerate investment and growth in the country.

scholarly journals The impact of stock market development on economic growth: A GMM approach

2021 ◽  
Vol 18 (3) ◽  
pp. 74-81
Author(s):  
Toan Ngoc Bui ◽  
Thu-Trang Thi Doan
Keyword(s):  
Economic Growth ◽  
Stock Market ◽  
Capital Accumulation ◽  
Developing Economies ◽  
Positive Impact ◽  
Generalized Method Of Moments ◽  
The Philippines ◽  
Market Development ◽  
Stock Market Development ◽  
The Impact

This study investigated the impact of stock market development (SMD) on economic growth (EG) among emerging markets and developing economies (EMDEs) in Asia. The data sample includes eight Asian EMDEs (China, Indonesia, India, Sri Lanka, Malaysia, the Philippines, Thailand, and Vietnam) from 2008 to 2019. These countries share several similarities, so this ensures reliability of the results. Regarding the analysis, the generalized method of moments (GMM) is used for the estimation. The results show that SMD exerts a positive impact on EG. This finding confirms the importance of SMD in improving efficient capital accumulation and allocation, and also allows investors to reduce risks and increase liquidity, which will boost EG. Further, the significant influence of domestic credit (DC), control of corruption (CC), and inflation (INF) on EG is also highlighted. These findings are valuable empirical evidence that greatly contributes to reinforcing the suitability of classical economic growth theories, especially the theory of endogenous growth. They are also essential to EMDEs in Asia. Accordingly, the EMDEs should develop effective policies to improve the stock market’s scale, which contributes substantially to the development of EG. Moreover, these economies need to pursue many appropriate policies in sync, such as stimulating SMD, improving governance effectiveness and implementing effective macroeconomic policies. Acknowledgment This study was funded by the Industrial University of Ho Chi Minh City (IUH), Vietnam (grant number: 21/1TCNH01).

scholarly journals The Impact of Stock Market Development on Economic Growth: The Case of Botswana

2019 ◽  
Vol 11 (12) ◽  
pp. 149
Author(s):  
Ishmael Radikoko ◽  
Shadreck A. Mutobo ◽  
Mphoeng Mphoeng
Keyword(s):  
Economic Growth ◽  
Stock Market ◽  
Market Development ◽  
Series Data ◽  
Strong Positive Correlation ◽  
Stock Market Development ◽  
Market Capitalization ◽  
Turnover Ratio ◽  
The Government ◽  
The Impact

This study examines the impacts of the stock market development on economic growth using Botswana as a case study. The study uses times series data covering a decade from 2006 to 2016. The method of analysis used is the Auto regressive distributed lag (ARDL) bounds model. The stock market capitalization ratio (MCR) was used as a proxy for market size while value of shares traded ratio (ST) and Turnover ratio (TR) were used as a proxy for liquidity, collectively representing stock market development. Real gross domestic product (GDP) growth rate was used to represent economic growth .The results show that market capitalization and turnover ratio have a negative correlation with economic growth, while the value of shares traded has a strong positive correlation with economic growth. This result implies that liquidity has propensity to stimulate economic growth in Botswana. The results of this study also found that there exists no causality relationship between stock market development and economic growth. The government should make policies that boost the interest of domestic investors in Botswana as this might spur investors’ interest and boost stock market activity which will improve liquidity and therefore stimulate economic growth.

scholarly journals DOES STOCK MARKET DEVELOPMENT AFFECT ECONOMIC GROWTH? ECONOMETRIC EVIDENCE FROM BANGLADESH

2018 ◽  
Vol 17 (1) ◽  
pp. 123 ◽  
Author(s):  
Abdullahil Mamun ◽  
Shahanara Basher ◽  
Nazamul Hoque ◽  
Dr. Md Hasmat Ali
Keyword(s):  
Stock Market ◽  
Positive Impact ◽  
Output Growth ◽  
Real Effective Exchange Rate ◽  
Market Development ◽  
Series Data ◽  
Large Contribution ◽  
Stock Market Development ◽  
Long Run ◽  
Financial Depth

The study aims to evaluate the causality linkage between  stock market development (SMD) and growth of the economy  in Bangladesh. Using time series data of quarterly frequency through 2000Q1-2017Q4 and employing the Johansen cointegration approach the study reveals that there  are  long-run co-integrating relationships among the variables, namely, GDP, development of the stock market, net interest spread, real effective exchange rate and financial depth. The Vector Error Correction Model (VECM) confirms the presence of a long-term equilibrium relationship between GDP and other variables such as regressors as the system is found to be stable in the long-run. As revealed from the study, the short run positive impact of SMD on the growth of the Bangladesh economy sustains in the long run, which is also true for financial depth. However, financial deepening has a relatively large contribution to the output growth of Bangladesh than SMD. Granger causality tests assert that the causal association is unidirectional that runs from SMD to output growth.

scholarly journals The Impact of Second Generation FDI Reforms on the Stock Market Development in India

2019 ◽  
Vol 8 (3) ◽  
pp. 8080-8087
Keyword(s):  
Foreign Direct Investment ◽  
Standard Deviation ◽  
Stock Market ◽  
Direct Investment ◽  
Structural Breaks ◽  
Second Generation ◽  
Terms Of Trade ◽  
Market Development ◽  
Stock Market Development ◽  
The Impact

The Governments took a series of initiatives as a measure of second-generation reforms in Foreign Direct Investment (FDI). The FDI reform initiatives had started since 1991 as foundation of Indian economy and the governments over the period contributed to emerge India as destination for Foreign Direct Investment in the world. These reforms played an important role in capital formation in stock markets and developments in the economy. This paper attempts to study the impact of second-generation economic reforms in FDI and its impact on Stock Market Development (SMD) in India. This paper uses a multivariate unrestricted VAR (Vector Autoregression) model to investigate the impact of the reforms in FDI on the development of stock market in India. The study used the quarterly data of FDI inflow, exchange rates and terms of trade (Exports/Imports) from 2004 to 2017 to find the long run impact of FDI reforms on the SMD. The SMD is the ratio of stock market capitalization to the Gross Domestic Product (GDP) of the country. The study uses the unrestricted VAR to generate impulse responses to find the impact of one standard deviation innovation change in one variable on other. Further, Unit Root Test, Granger causality test statistics and variance decomposition (VDC) respectively have been applied to identify variables stationarity, the causality and percent change in variance due to one standard deviation innovation in other variable. The findings of the study conclude that there were structural breaks in the data during 2007Q1 and 2011Q1 due to US financial crisis that lead to high volatility in the Indian stock market. Further, finding concluded that there is a bidirectional causality between foreign direct investment and the stock market development. Finally, study revealed that FDI and terms of trade are also having a bidirectional causality where shock in terms of trade brings a change of 25.15 percent in FDI inflows

scholarly journals Are Banks And Stock Markets Positively Related? Empirical Evidence From South Africa

2010 ◽  
Vol 26 (6) ◽  
Author(s):  
Nicholas M Odhiambo
Keyword(s):  
South Africa ◽  
Stock Market ◽  
Stock Markets ◽  
Real Income ◽  
Market Development ◽  
Bounds Testing ◽  
Critical Question ◽  
Stock Market Development ◽  
Long Run ◽  
Short Run

<p class="MsoNormal" style="text-align: justify; margin: 0in 0.5in 0pt; mso-pagination: none;"><a name="OLE_LINK2"></a><a name="OLE_LINK1"><span style="mso-bookmark: OLE_LINK2;"><span style="color: black; font-size: 10pt; mso-themecolor: text1;" lang="EN-GB"><span style="font-family: Times New Roman;">In this study, we examine the relationship between banks and stock market development in South Africa.<span style="mso-spacerun: yes;">&nbsp; </span>The study attempts to answer one critical question: Are banks and stock markets positively related in South Africa? The bank development is proxied by the ratio of the domestic credit to the private sector to GDP (DCP/GDP), while the stock market development is proxied by the ratio of the stock market capitalisation to GDP (CAP/GDP).Unlike the majority of the previous studies, the current study uses the newly introduced ARDL-Bounds testing approach, as proposed by Pesaran<span style="mso-spacerun: yes;">&nbsp; </span>et al. (2001), to examine this linkage. The empirical results show that there is a distinct positive relationship between banks and stock markets in South Africa. The results apply irrespective of whether the model is estimated in the short run or in the long run. <span style="mso-bidi-font-style: italic;">Other results show that in the short run, the stock market development in South Africa is positively determined by the level of savings, but negatively affected by the rate of inflation and the lagged values of the stock market development. However, in the long run, the stock market is positively determined by real income and the inflation rate. </span><span style="mso-spacerun: yes;">&nbsp;</span></span></span></span></a></p>

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