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Does opening a stock exchange increase economic growth?

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  • Scott Baier
  • Gerald P. Dwyer, Jr.
  • Robert Tamura

Abstract

We examine the connection between the creation of stock exchanges and economic growth with a new set of data on economic growth that spans a longer time period than generally available. We find that economic growth increases relative to the rest of the world after a stock exchange opens. Our evidence indicates that increased growth of productivity is the primary way that a stock exchange increases the growth rate of output, rather than an increase in the growth rate of physical capital. We also find that financial deepening is rapid before the creation of a stock exchange and slower subsequently.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Atlanta in its series Working Paper with number 2003-36.

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Date of creation: 2003
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Handle: RePEc:fip:fedawp:2003-36

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  1. Robert J. Barro, 1995. "Inflation and Economic Growth," NBER Working Papers 5326, National Bureau of Economic Research, Inc.
  2. Scott L. Baier & Gerald P. Dwyer, Jr. & Robert Tamura, 2002. "How important are capital and total factor productivity for economic growth?," Working Paper 2002-2, Federal Reserve Bank of Atlanta.
  3. Peter L. Rousseau & Richard Sylla, 2003. "Financial Systems, Economic Growth, and Globalization," NBER Chapters, in: Globalization in Historical Perspective, pages 373-416 National Bureau of Economic Research, Inc.
  4. Greenwood, J. & Jovanovic, B., 1990. "Financial Development, Growth, And The Distribution Of Income," University of Western Ontario, The Centre for the Study of International Economic Relations Working Papers 9002, University of Western Ontario, The Centre for the Study of International Economic Relations.
  5. Scott L. Baier & Gerald P. Dwyer, Jr. & Robert Tamura, 2003. "Modern economic growth and recent stagnation," Economic Review, Federal Reserve Bank of Atlanta, issue Q3, pages 45-62.
  6. Matthew J. Clayton & Bjorn N. Jorgensen & Kenneth A. Kavajecz, 1999. "On the Formation and Structure of International Exchanges," New York University, Leonard N. Stern School Finance Department Working Paper Seires 99-057, New York University, Leonard N. Stern School of Business-.
  7. Barro, Robert J, 1999. " Notes on Growth Accounting," Journal of Economic Growth, Springer, vol. 4(2), pages 119-37, June.
  8. Richard R. Nelson & Edmond S. Phelps, 1965. "Investment in Humans, Technological Diffusion and Economic Growth," Cowles Foundation Discussion Papers 189, Cowles Foundation for Research in Economics, Yale University.
  9. Bencivenga, V.R. & Smith, B.D., 1988. "Financial Intermediation And Endogenous Growth," RCER Working Papers 124, University of Rochester - Center for Economic Research (RCER).
  10. Geert Bekaert & Campbell R. Harvey & Christian T. Lundblad, 2003. "Equity Market Liberalization in Emerging Markets," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 26(3), pages 275-299.
  11. Robert J. Barro & Jong-Wha Lee, 1993. "International Comparisons of Educational Attainment," NBER Working Papers 4349, National Bureau of Economic Research, Inc.
  12. Summers, Robert & Heston, Alan, 1991. "The Penn World Table (Mark 5): An Expanded Set of International Comparisons, 1950-1988," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 327-68, May.
  13. Atje, Raymond & Jovanovic, Boyan, 1993. "Stock markets and development," European Economic Review, Elsevier, vol. 37(2-3), pages 632-640, April.
  14. Jones, Larry E & Manuelli, Rodolfo E, 1990. "A Convex Model of Equilibrium Growth: Theory and Policy Implications," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 1008-38, October.
  15. Pirrong, Craig, 2000. "A Theory of Financial Exchange Organization," Journal of Law and Economics, University of Chicago Press, vol. 43(2), pages 437-71, October.
  16. Paul Wachtel, 2003. "How much do we really know about growth and finance?," Economic Review, Federal Reserve Bank of Atlanta, issue Q1, pages 33-47.
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Cited by:
  1. Muhammad, Shahbaz & Lean, Hooi Hooi, 2011. "Does Financial Development Increase Energy Consumption? Role of Industrialization and Urbanization in Tunisia," MPRA Paper 33194, University Library of Munich, Germany, revised 06 Sep 2011.
  2. Koetter, Michael & Wedow, Michael, 2005. "Finance and growth in a bank-based economy: is it quantity or quality that matters?," Discussion Paper Series 2: Banking and Financial Studies 2006,02, Deutsche Bundesbank, Research Centre.
  3. Muhammad, Shahbaz, 2011. "Electricity Consumption, Financial Development and Economic Growth Nexus: A Revisit Study of Their Causality in Pakistan," MPRA Paper 35588, University Library of Munich, Germany, revised 27 Dec 2011.
  4. Najeb Masoud, 2013. "Neoclassical Economic Growth Theory: An Empirical Approach," Far East Journal of Psychology and Business, Far East Research Centre, vol. 11(2), pages 10-33, June.
  5. Chase Parker DeHan, 2012. "Stock Markets and Growth: A Re-Evaluation," Working Paper Series, Department of Economics, University of Utah dehan_2012_08, University of Utah, Department of Economics.
  6. Ferreira, Miguel A. & Laux, Paul A., 2009. "Portfolio flows, volatility and growth," Journal of International Money and Finance, Elsevier, vol. 28(2), pages 271-292, March.
  7. Lucarelli, Caterina & Palomba, Giulio, 2007. "Investors’ behaviour in the Chinese Stock Exchanges: Empirical Evidence in a Systemic Approach," MPRA Paper 7034, University Library of Munich, Germany.
  8. Sadorsky, Perry, 2010. "The impact of financial development on energy consumption in emerging economies," Energy Policy, Elsevier, vol. 38(5), pages 2528-2535, May.
  9. Fung, Michael K., 2009. "Financial development and economic growth: Convergence or divergence?," Journal of International Money and Finance, Elsevier, vol. 28(1), pages 56-67, February.

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