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Endogenous growth and Stock Market Development

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Author Info

  • Guglielmo Maria Caporale,

    (South Bank University London)

  • Peter G. A Howells,

    ()
    (University of the West of England)

  • Alaa M. Soliman,

    (Leeds Metropolitan University)

Abstract

This paper re-examines the relationship between stock market development and economic growth. It provides a theoretical basis for establishing the channel through which stock markets affect economic growth in the long run. It examines the hypothesis of endogenous growth models that financial development causes higher growth through its influence on the level of investment and its productivity. The empirical part of this study exploits techniques recently developed to test for causality in VARs. The evidence obtained from a sample of four countries suggests that investment productivity is the channel through which stock market development enhances the growth rate in the long run.

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File URL: http://carecon.org.uk/DPs/0302.pdf
File Function: First version, 2003
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Bibliographic Info

Paper provided by Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol in its series Working Papers with number 0302.

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Length: 18 pages
Date of creation: Feb 2003
Date of revision:
Handle: RePEc:uwe:wpaper:0302

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Postal: Frenchay Campus, Coldharbour Lane, Bristol BS16 1QY
Phone: 0117 328 3610
Web page: http://www1.uwe.ac.uk/bl/research/bristoleconomics.aspx
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Related research

Keywords: Financial Development; Endogenous Growth; Stock Market; Channel of Transmission; Causality Testing in VARs;

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References

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  1. Mayer, Colin, 1987. "New Issues in Corporate Finance," CEPR Discussion Papers, C.E.P.R. Discussion Papers 181, C.E.P.R. Discussion Papers.
  2. Hiro Y. Toda & Peter C.B. Phillips, 1991. "Vector Autoregression and Causality," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 977, Cowles Foundation for Research in Economics, Yale University.
  3. Levine, Ross, 1992. "Financial structures and economic development," Policy Research Working Paper Series 849, The World Bank.
  4. James Dow & Gary Gorton, 1995. "Stock Market Efficiency and Economic Efficiency: Is There a Connection?," NBER Working Papers 5233, National Bureau of Economic Research, Inc.
  5. Singh, A. & Hamid, J., 1992. "Corporate Financial Structure in Developing Countries," Papers, World Bank - International Finance Corporation 1, World Bank - International Finance Corporation.
  6. Panicos O. Demetriades & Khaled A.Hussein, 1995. "Does Financial Development Cause Economic Growth? Time-Series Evidence from 16 Countries," Keele Department of Economics Discussion Papers (1995-2001), Department of Economics, Keele University 95/13, Department of Economics, Keele University.
  7. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, Econometric Society, vol. 50(4), pages 987-1007, July.
  8. R. E. Kihlstrom & Steven A. Matthews, 1988. "Managerial Incentives in An Entrepreneurial Stock Market Model," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 769, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  9. Demirguc-Kunt, Asli, 1992. "Developing country capital structures and emerging stock markets," Policy Research Working Paper Series 933, The World Bank.
  10. Toda, Hiro Y. & Yamamoto, Taku, 1995. "Statistical inference in vector autoregressions with possibly integrated processes," Journal of Econometrics, Elsevier, Elsevier, vol. 66(1-2), pages 225-250.
  11. Demirguc-Kunt, Ash & Levine, Ross, 1996. "Stock Markets, Corporate Finance, and Economic Growth: An Overview," World Bank Economic Review, World Bank Group, World Bank Group, vol. 10(2), pages 223-39, May.
  12. Levine, Ross & Zervos, Sara, 1996. "Stock market development and long-run growth," Policy Research Working Paper Series 1582, The World Bank.
  13. Bencivenga, V.R. & Smith, B.D., 1988. "Financial Intermediation And Endogenous Growth," RCER Working Papers, University of Rochester - Center for Economic Research (RCER) 124, University of Rochester - Center for Economic Research (RCER).
  14. Caporale, Guglielmo Maria & Pittis, Nikitas, 1999. " Efficient Estimation of Cointegrating Vectors and Testing for Causality in Vector Autoregressions," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 13(1), pages 1-35, February.
  15. Timothy F. Bresnahan & Paul Milgrom & Jonathan Paul, 1992. "The Real Output of the Stock Exchange," NBER Chapters, National Bureau of Economic Research, Inc, in: Output Measurement in the Service Sectors, pages 195-216 National Bureau of Economic Research, Inc.
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