What benefits does a country gain from having a stock market. The first group of studies has found a significant relationship between stock market development and economic growth e. Stock market development and economic growth in india. The role of stock market on nigerias economic development ijsrp. This paper stresses the importance of the processes and. It is the most dynamic and organised component of capital market.
For the western cape province to formulate and implement successful, welltargeted policies on economic development it needs to identify the projects that contribute to economic development, the skills involved, labour market development and job creation, employment factors and poverty reduction. Evidence from some euronext countries article pdf available december 2010 with 696 reads how we measure reads. The evolving importance of banks and securities markets. Revisiting stock market development and economic growth. The role of stock market on nigerias economic development. The roles discussed were 1 resource mobilisation, 2 credit creation 3 provision of wealth 4 solution to liquidity problems. The development of chinas stock market and stakes for the. They operate in fully developed societies such as in north america and western europe, and in developing countries in africa, asia, the middle east and other world regions. Three proxies namely stock market capitalization smc, stock traded value stv and stock turnover ratio stor are used for stock market development, financial depth fd is used as the proxy of financial intermediary and the economic growth measured with gdp growth over the time period 19882012. Specifically, this research investigated the role of stock market size and liquidity on economic growth. It also a determined the factors which hinder the swift growth of dar es salaam stock exchange market and the suggested measures to be taken by dse to promote economic development in tanzania. The results of the study suggest a positive links between the stock market and economic growth for some countries for which the stock market is liquid and highly active. At the stock exchange, share prices rise and fall depending, largely, on market forces.
The paper presents stylized facts on the trends and patterns of financial development in africa since the 1970s, discusses the size and performance of african stock markets, and summarizes the findings from existing empirical studies on the effects of financial development on economic growth in. Another way in which stock exchange market contributes toward economic growth is toward global risk diversification. The role of stock exchanges in fostering economic growth and sustainable development 6 1. Therefore their movement of share prices can be an indicator of the general trend in the economy. Stock exchanges play a vital role in the functioning of the economy by providing the backbone to a modern nations economic infrastructure. The role of the stock exchange in the economy finance. Role of stock exchange in economic development of a country. The role of stock markets utilizing time series methods and data from five developed economies, we examine the relationship between stock market development and economic growth, controlling for the effects of the banking system and stock market volatility. However, the causality relationship is rejected for the countries in which the stock market is small and less liquid. The role of stock market development in economic growth. However, there exists very little empirical evidence on the relationship between stock market development and long run economic growth. Stock market development and economic growth in belgium.
The stock market and economic development munich personal. Are they playing an important role in allocating capital to industry. A unique benefit of the stock exchange market to entities is the provision of equity securities. Pdf financial markets and economic development in africa. Along with the debt markets dominated by commercial lenders, stock exchanges are an invaluable source of capital for businesses. Stock market volatility and economic growth in nigeria. Can stock market development boost economic growth. A stock market predominantly promotes efficient mobilization of savings towards investments and thereby. In light of these findings, the study recommends that the. Stock market development and economic growth in africa. The stock exchange is a pivotal institution in the capital market that marshals resources for economic activities. Stock markets allow investors to put their savings to work earning returns. Especially, in developing countries like india, the stock exchanges play a cardinal role in promoting the level of capital. Therefore, malaysia has been selected as an empirical case.
Pdf the role of stock market development in economic. In the developing and emerging markets like zimbabwe such evidence is almost zero with the exception of one study by madzivanyika 2008. The role of stock exchanges in fostering economic growth. Liquid financial market was an important enabling factor behind most of. The link between stock market development and economic activity has always been the subject of considerable debate in the field of economics and it raises empirical question whether stock market development influences economic activity or whether it is a consequence of increased economic activity. When the government or municipal council gets this alternative source of funds, it no longer has the need to overtax the people in order to finance development. Two years into emu organised by the oesterreichische nationalbank in vienna on 31 may 2001. It uses annual data from a panel of 36 countries, of which 18 have stock markets, in africa over the period 19802010. The role of stock exchanges in fostering economic growth and sustainable development. The role of stock exchanges in fostering economic growth and sustainable development 2. More importantly, they found that stock market liquidity and banking. The efficient and effective operation of the securities market is required to meet at least two basic requirements.
Stock exchanges provide order and impose regulations for the trading of stocks. The objective of this study is to investigate the role of stock market development on economic growth in africa. The effect of the stock exchange on economic growth. Stock markets, banks, and economic development econstor. What is the relationship between stock market development and economic growth. This means that it should also impact the whole economical status of a country as well. The extensive literature shows the importance of stock market performance on economic growth. Evidence from some euronext countries, authorake boubakari and dehuan jin, year2010. The impact of the stock exchange market in economic. For many years, the role of stock markets have been under looked as important components that enhance economic growth, instead bankbased financial. The financial stock market facilitates higher investments and the allocation of capital, and indirectly the economic growth. Duisenberg, president of the european central bank, at the economics conference the single financial market. Financial markets are the engine that drives this vehicle to economic growth.
Pdf the role of stock market development on economic growth. Moreover, joan robertson declared in 1952 that where enterprise leads, finance follows. The main functions of the nigerian stock exchange market include among others providing opportunities for the offerings of shares and stocks to the public. Stock market development has assumed a developmental role in global economics and finance because of their impact they have exerted in corporate finance and economic activity. Ample of studies in nigeria investigated the role of stock market development on economic growth. For rapid economic development, both direct and indirect financing should be considered complementary. Section 3 places our paper in the large empirical literature that has linked. The role of the stock market is to raise longterm funds for corporations primary market while providing a platform for the trading of securities secondary market. Through the provision of equity securities, companies acquire perpetual capital for development.
Section 5 documents the historical context and the legislative. Levine, zervos, 1996 and demigurc kunt and levine, 1996 carried out their analysis focusing on stock market indicators and demonstrated the existence of a causal relation between stock market development and economic growth. In india where almost 7000 companies are listed in the two leading stock exchanges nse and bse, the impact of stock market on. Stock market is one of the most vigorous sector which plays an important role in contributing to the wealth of an economy. Robert lucas asserted in 1988 that economists badly overstress the role of financial factors in economic growth. The role of stock markets as a source of economic growth has been widely debated. Stock market is an indicator of an economy financial health. You may be surprised to discover the number of stock markets blanketing the globe. The stock market refers to the collection of markets and exchanges where the issuing and trading of equities stocks of publicly held companies, bonds and other sorts of. The role of stock exchange in the economic development of. Pdf this study investigated the role of stock market development on economicgrowth of nigeria using a 15year time series data from. Role of stock markets in the economic growth of india are as follows. According to this view, economic development creates demands for particular types of. As such, the behavior of a countrys stock markets can serve as a reliable indicator of national economic performance.
So, how exactly does a stock market benefit an economy. Though the importance of stock market volatility on economic growth has received much attention, a highly inadequate number of research works have been done to investigate whether or not there is a relationship between stock market volatility and economic growth in the case of nigeria economies. Also, inspects the moderated moderating role of foreign capital inflows on the relationship between stock market development and economic growth. In all the findings, stock market development is regarded a crucial factor to sustainable mobilisation and or directing of financial resources to the productive sectors. What is the role of stock markets in the economic growth. Role of stock exchanges in capital market of india. Even developed countries need to grow and increase their gross domestic product. Stock market development and economic growth in nigeria. Further analyses show that, although bank based financial development and stock market development leads economic growth, stock market development plays important role during the period 19742011. The objectives are tested with following hypothesis. Stock exchanges play a crucial role in the consolidation of a national economy in general and in the development of industrial sector in particular.
But unlike with loans, stocks give investors an ownership interest in the company. It absorbs savings and provides liquidity for investments, helps reduce. Stock exchange is an organized market where government securities, shares, bonds and debentures of the trading units are regularly transacted. The role of stock market on nigerias economic development osho, augustine ejededawe ph. This paper examines the impact of stock market development on economic growth in sub. Pdf role of financial markets for economic growth in. Considering the conflicting theoretical perspectives on the importance of well functioning stock markets for economic growth, this paper uses crosscountry. On the other hand, stock markets play an even more pivotal role in economic development. It is well recognised that stock markets influence economic activity through the creation of liquidity. Economic growth is a goal that every country strives to achieve. Saharan africa using a balanced panel data of five selected countries over the period 1993 20 and the. Osamwanyi 2005 stated that stock market is a place where people arrange financial trading. This article addresses issues concerning the place and role of capital market within the financial markets and in financing investments, trying to highlight the growing importance of this subsystem, shown both to economic agents and to all categories of investors. The role of stock market development on economic growth.
The role of stock exchanges in fostering economic growth and. The role of the stock market in economic development. Role of stock exchange in economic development of a country a stock exchange is an entity which provides trading facilities for stock brokers and traders, to trade stocks and other securities. Stock exchanges help companies raise money to expand. They also provide individuals the ability to invest in companies. On the other hand, rousseau and wachtel 2000 and beck and levine 2003 show that stock market development is strongly correlated with growth rates of real gdp per capita. The report benefits from the inputs of a number of stock exchanges around the world who are. The study was designed to identify the role of stock exchange market to economic growth in tanzania.
There is a strong positive relationship between stock. The role of financial markets for economic growth speech delivered by dr. This result is consistent with theoretical postulation which suggests that stock market development have a key role to play in the economic growth of developing countries. Bursary department, ekiti state university, ado ekiti, nigeria abstract the paper examined the role of stock market on nigerias economic development from 1980 to 2010 which cover the market performance and economic growth in nigeria. From the study, stock market development is positively correlated with the development of financial intermediaries and consequently economic growth. Whitelaw new york university june 1, 2017 abstract the rise of china and. Growth rate of stock market signify growth percentage rise in economy.
The impact of financial development on economic growth in. Stock market development facilitates the access of investors to financial resources and stimulates efficient allocation. The development of chinas stock market and stakes for the global economy. Causal relations were investigated for each country. Stock markets provide an economic boost through creation of liquidity. As such, stock market development is an important ingredient for growth. Even a country not known for having a sophisticated economy, like. Stock exchanges also provide facilities for the issue and redemption of securities as well as other financial instruments and capital events including. The role of stock exchange in the economic development of pakistan. Introduction eariier literature on the development process stressed the importance of capital accumulation, and the role of financial institutions in that process.
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