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The Stock Market Development and Economic Growth Puzzle: Empirical Evidence from Africa

In: Development Finance

Author

Listed:
  • Gideon Boako

    (University of the Witwatersrand Business School)

  • Paul Alagidede

    (University of the Witwatersrand Business School)

Abstract

This chapter contributes to the unending debate on whether stock market development causes economic growth, or the former is a result of the latter, or the two are mutually causal. By using two measures of stock market development (i.e. turn-over ratios of domestic shares and market capitalizations (%) of domestic listed firms) and four indicators of economic performance (i.e. GDP growth, net FDI flows, gross savings, and capital formation), we find that the relationship between stock market development and economic growth in Africa is rather mute. Implicitly, the supply-leading and demand-following hypothesis, as well as the mutually causal theories, is not supported by these results. It stands to reason therefore that the effect of either stock market development on economic growth or the reverse in Africa may occur through some other economic and/or financial channels.

Suggested Citation

  • Gideon Boako & Paul Alagidede, 2017. "The Stock Market Development and Economic Growth Puzzle: Empirical Evidence from Africa," Palgrave Studies in Impact Finance, in: Gianluigi Giorgioni (ed.), Development Finance, chapter 8, pages 207-240, Palgrave Macmillan.
    • Handle: RePEc:pal:psifcp:978-1-137-58032-0_8
    DOI: 10.1057/978-1-137-58032-0_8
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