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Does opening a stock exchange increase economic growth?

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  • Scott L. Baier
  • Gerald P. Dwyer
  • 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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  • Scott L. Baier & Gerald P. Dwyer & Robert Tamura, 2003. "Does opening a stock exchange increase economic growth?," FRB Atlanta Working Paper 2003-36, Federal Reserve Bank of Atlanta.
    • Handle: RePEc:fip:fedawp:2003-36
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    2. Shahbaz, Muhammad & Lean, Hooi Hooi, 2012. "Does financial development increase energy consumption? The role of industrialization and urbanization in Tunisia," Energy Policy, Elsevier, vol. 40(C), pages 473-479.
    3. Devereux, John & Dwyer, Gerald P., 2016. "What determines output losses after banking crises?," Journal of International Money and Finance, Elsevier, vol. 69(C), pages 69-94.
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    5. Borlea Sorin Nicolae & Puscas Adriana & Mare Codruta & Achim Monica Violeta, 2016. "Direction of Causality Between Financial Development and Economic Growth. Evidence for Developing Countries," Studia Universitatis „Vasile Goldis” Arad – Economics Series, Sciendo, vol. 26(2), pages 1-22, June.
    6. Koetter, Michael & Wedow, Michael, 2010. "Finance and growth in a bank-based economy: Is it quantity or quality that matters?," Journal of International Money and Finance, Elsevier, vol. 29(8), pages 1529-1545, December.
    7. Caterina LUCARELLI & Giulio PALOMBA, 2007. "Investors' Behaviour in the Chinese Stock Exchanges: Empirical Evidence in a Systemic Approach," Working Papers 297, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
    8. 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.
    9. Chase Parker DeHan, 2012. "Stock Markets and Growth: A Re-Evaluation," Working Paper Series, Department of Economics, University of Utah 2012_08, University of Utah, Department of Economics.
    10. Sadorsky, Perry, 2010. "The impact of financial development on energy consumption in emerging economies," Energy Policy, Elsevier, vol. 38(5), pages 2528-2535, May.
    11. 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.
    12. Elyas Elyasiani & Wanli Zhao, 2008. "International interdependence of an emerging market: the case of Iran," Applied Economics, Taylor & Francis Journals, vol. 40(4), pages 395-412.
    13. 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.
    14. Chien-Chiang Lee & Chi-Chuan Lee & Chun-Ping Chang, 2015. "Globalization, Economic Growth and Institutional Development in China," Global Economic Review, Taylor & Francis Journals, vol. 44(1), pages 31-63, March.
    15. Mariusz Prochniak & Katarzyna Wasiak, 2017. "The impact of the financial system on economic growth in the context of the global crisis: empirical evidence for the EU and OECD countries," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 44(2), pages 295-337, May.
    16. Shahbaz, Muhammad & Islam, Faridul & Sabihuddin Butt, Muhammad, 2015. "Finance-Growth-Energy Nexus and the Role of Agriculture and Modern Sectors: Evidence from ARDL Bounds Test Approach to Cointegration in Pakistan," MPRA Paper 62848, University Library of Munich, Germany, revised 14 Mar 2015.
    17. Hasan Gungor & Angela Uzoamaka Simon, 2017. "Energy Consumption, Finance and Growth: The Role of Urbanization and Industrialization in South Africa," International Journal of Energy Economics and Policy, Econjournals, vol. 7(3), pages 268-276.
    18. 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.
    19. 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.
    20. Blau, Benjamin M., 2017. "Economic freedom and crashes in financial markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 47(C), pages 33-46.
    21. Boulton, Thomas J., 2022. "Social progress, business formation, and access to investment capital," Emerging Markets Review, Elsevier, vol. 50(C).
    22. Brown, James R. & Martinsson, Gustav & Petersen, Bruce C., 2017. "Stock markets, credit markets, and technology-led growth," Journal of Financial Intermediation, Elsevier, vol. 32(C), pages 45-59.
    23. Tuan-Hock Ng & Chun-Teck Lye & Kar-Hoong Chan & Ying-Zhee Lim & Ying-San Lim, 2020. "Sustainability in Asia: The Roles of Financial Development in Environmental, Social and Governance (ESG) Performance," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 150(1), pages 17-44, July.
    24. Muhammad Shahbaz & Faridul Islam & Muhammad Sabihuddin Butt, 2016. "Finance–Growth–Energy Nexus and the Role of Agriculture and Modern Sectors: Evidence from ARDL Bounds Test Approach to Cointegration in Pakistan," Global Business Review, International Management Institute, vol. 17(5), pages 1037-1059, October.

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