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The Impact of Stock Market Performance upon Economic Growth

Author

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  • Najeb M.H. Masoud

    (Department of Banking and Finance, College of Economics and Business, Al-zaytoonah University of Jordan, P.O. Box 130, Amman 11733, Jordan)

Abstract

The main purpose of this study was to explore the causal link between stock market performance and economic growth in terms of a simple theoretical and empirical literature framework. Researchers hold diverse opinions regarding the importance of stock markets playing a significant role in economic growth processes by performing the following functions: improving liquidity, aggregating and mobilising capital, observing managers and exerting corporate control, providing risk-pooling and sharing services including investment levels. The growing theoretical literature argues that stock markets are crucially linked to economic growth. The findings suggest a positive relationship between efficient stock markets and economic growth, both in short run and long run and there is evidence of an indirect transmission mechanism through the effect of stock market development on investment. They are seen as providing a service that boosts economic growth. The results are consistent with the theoretical and empirical predictions.

Suggested Citation

  • Najeb M.H. Masoud, 2013. "The Impact of Stock Market Performance upon Economic Growth," International Journal of Economics and Financial Issues, Econjournals, vol. 3(4), pages 788-798.
  • Handle: RePEc:eco:journ1:2013-04-2
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    References listed on IDEAS

    as
    1. Valerie R. Bencivenga & Bruce D. Smith, 1991. "Financial Intermediation and Endogenous Growth," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 195-209.
    2. Fulghieri, Paolo & Rovelli, Riccardo, 1998. "Capital markets, financial intermediaries, and liquidity supply," Journal of Banking & Finance, Elsevier, vol. 22(9), pages 1157-1180, September.
    3. Boyle, Glenn W & Peterson, James D, 1995. "Monetary Policy, Aggregate Uncertainty, and the Stock Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(2), pages 570-582, May.
    4. Levine, Ross, 1991. " Stock Markets, Growth, and Tax Policy," Journal of Finance, American Finance Association, vol. 46(4), pages 1445-1465, September.
    5. Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 1(1), pages 15-29, February.
    6. Ajit Singh, 1999. "Should Africa promote stock market capitalism?," Journal of International Development, John Wiley & Sons, Ltd., vol. 11(3), pages 343-365.
    7. Peter Blair Henry, 2000. "Stock Market Liberalization, Economic Reform, and Emerging Market Equity Prices," Journal of Finance, American Finance Association, vol. 55(2), pages 529-564, April.
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    More about this item

    Keywords

    Stock Market Performance; Economic Growth; Developed and Developing Countries;

    JEL classification:

    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • G0 - Financial Economics - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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