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Does the stock market cause economic growth? Portuguese evidence of economic regime change

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  • Marques, Luís Miguel
  • Fuinhas, José Alberto
  • Marques, António Cardoso

Abstract

The relationship between stock market and economic growth is tested for Portugal (1993–2011), which is a small open economy dependent on bank financing. The relationship between economic growth and bank financing is also appraised. Using Vector Autoregressive (VAR) modeling, Granger causality, variance decomposition and impulse response function are discussed. The physical replacement of the currency, as a consequence of the integration in the European Monetary Union, proves to be an economic regime change. The effect of the subprime crisis was also proved. There is evidence of Granger bidirectional causality between the stock market and economic growth. Meanwhile, there was no evidence of causality running from bank financing to economic growth.

Suggested Citation

  • Marques, Luís Miguel & Fuinhas, José Alberto & Marques, António Cardoso, 2013. "Does the stock market cause economic growth? Portuguese evidence of economic regime change," Economic Modelling, Elsevier, vol. 32(C), pages 316-324.
    • Handle: RePEc:eee:ecmode:v:32:y:2013:i:c:p:316-324
    DOI: 10.1016/j.econmod.2013.02.015
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    References listed on IDEAS

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    Cited by:

    1. Muyambiri, Brian & Odhiambo, Nicholas M, 2017. "The causal relationship between financial development and investment in Botswana," Working Papers 22607, University of South Africa, Department of Economics.
    2. repec:bpj:glecon:v:17:y:2017:i:1:p:19:n:1 is not listed on IDEAS
    3. Nyasha, Sheilla & Odhiambo, Nicholas M., 2016. "Financial intermediaries, capital markets, and economic growth: empirical evidence from six countries," Working Papers 19908, University of South Africa, Department of Economics.
    4. repec:eme:sefpps:sef-05-2016-0111 is not listed on IDEAS
    5. Ho, Sin-Yu, 2017. "The Macroeconomic Determinants of Stock Market Development: Evidence from Malaysia," MPRA Paper 77232, University Library of Munich, Germany.
    6. repec:spr:empeco:v:53:y:2017:i:2:d:10.1007_s00181-016-1142-0 is not listed on IDEAS
    7. repec:bpj:glecon:v:17:y:2017:i:3:p:10:n:7 is not listed on IDEAS
    8. repec:taf:macfem:v:10:y:2017:i:2:p:151-171 is not listed on IDEAS
    9. repec:eee:ecanpo:v:55:y:2017:i:c:p:106-123 is not listed on IDEAS
    10. Ho, Sin-Yu, 2017. "The Macroeconomic Determinants of Stock Market Development: Evidence from South Africa," MPRA Paper 76493, University Library of Munich, Germany.
    11. repec:spr:empeco:v:52:y:2017:i:4:d:10.1007_s00181-016-1111-7 is not listed on IDEAS
    12. Muyambiri Brian & Odhiambo Nicholas, 2017. "Financial Development, Savings and Investment in South Africa: A Dynamic Causality Test," Global Economy Journal, De Gruyter, vol. 17(3), pages 1-10, September.
    13. Erick Lahura & Marco Vega, 2017. "Stock market development and real economic activity in Peru," Empirical Economics, Springer, vol. 53(3), pages 1011-1038, November.
    14. Mikhail Stolbov, 2017. "Causality between credit depth and economic growth: evidence from 24 OECD countries," Empirical Economics, Springer, vol. 53(2), pages 493-524, September.
    15. Polat, Ali & Shahbaz, Muhammad & Ur Rehman, Ijaz & Satti, Saqlain Latif, 2013. "Revisiting Linkages between Financial Development, Trade Openness and Economic Growth in South Africa: Fresh Evidence from Combined Cointegration Test," MPRA Paper 51724, University Library of Munich, Germany, revised 25 Nov 2013.

    More about this item

    Keywords

    Stock market; Economic growth; Economic regime change; Granger causality; VAR;

    JEL classification:

    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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