Stock Markets and Growth: A Re-Evaluation
AbstractThere is a large body of literature stressing the importance of developing financial markets, including stock markets, to enhance countries’ growth. I argue that the relationship between stock markets and growth is exaggerated and that the simple act of opening a formal stock market is not a good predictor of whether a country will experience economic growth. While it is possible that in some instances opening a stock market can lead to increased growth, I do not find any evidence that opening a stock market has any impact. This research uses two Bayesian econometric methods, Extreme Bounds Analysis (EBA) and Bayesian Model Averaging (BMA), to discover if there are meaningful links between stock markets and growth in developing economies. Superior to traditional cross-sectional regressions, these methodologies allow for determining the true impact of certain variables. Using a similar dataset to multiple other studies, I find a zero, or weakly negative, correlation between the opening of a stock market and growth in developing countries. 82 countries and 32 independent variables were used comparing all stock market openings between 1960 and 1999 to those without a stock market on growth between 2002 and 2007.
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Bibliographic InfoPaper provided by University of Utah, Department of Economics in its series Working Paper Series, Department of Economics, University of Utah with number dehan_2012_08.
Length: 24 pages
Date of creation: 2012
Date of revision:
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Bayesian econometrics; stock markets; development JEL Classification: O17; E44; C11;
Find related papers by JEL classification:
- dev - - - - - -
- JEL - Labor and Demographic Economics - - - - -
- Cla - Mathematical and Quantitative Methods - - - - -
- O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
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