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

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Listed author(s):
  • 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.

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Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 32 (2013)
Issue (Month): C ()
Pages: 316-324

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Handle: RePEc:eee:ecmode:v:32:y:2013:i:c:p:316-324
DOI: 10.1016/j.econmod.2013.02.015
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30411

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

Find related papers by 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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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. Ho, Sin-Yu, 2017. "The Macroeconomic Determinants of Stock Market Development: Evidence from Malaysia," MPRA Paper 77232, University Library of Munich, Germany.
  5. repec:spr:empeco:v:53:y:2017:i:2:d:10.1007_s00181-016-1142-0 is not listed on IDEAS
  6. Ho, Sin-Yu, 2017. "The Macroeconomic Determinants of Stock Market Development: Evidence from South Africa," MPRA Paper 76493, University Library of Munich, Germany.
  7. repec:spr:empeco:v:52:y:2017:i:4:d:10.1007_s00181-016-1111-7 is not listed on IDEAS
  8. Muyambiri, Brian & Odhiambo, Nicholas M, 2017. "Financial development,savings and investment in South Africa:A dynamic causality test," Working Papers 22657, University of South Africa, Department of Economics.
  9. Stolbov, Mikhail, 2015. "Causality between credit depth and economic growth: Evidence from 24 OECD countries," BOFIT Discussion Papers 15/2015, Bank of Finland, Institute for Economies in Transition.
  10. 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.

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