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Econometrics of the Effects of Stock Market Development on Growth and Private Investment in Lower Income Countries

  • J Benson Durham

Recent literature suggests that stock market liberalisation has positive effects on macroeconomic growth and private investment. However, econometric relations are largely dependent on the inclusion of higher income countries in such samples, which quite conceivably limits the relevance for lower income nations. Indeed, some evidence in this study indicates that stock market development has a more positive impact on growth for greater levels of per capita GDP. Similarly, lagged equity price appreciation seems to boost private investment growth, but only in rich countries. Curiously, neither financial nor legal development variables, which are more serviceably relevant than initial income, seem to be mitigating factors, but these data imply subdued enthusiasm regarding emerging equity market development.

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Paper provided by Queen Elizabeth House, University of Oxford in its series QEH Working Papers with number qehwps53.

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Handle: RePEc:qeh:qehwps:qehwps53
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  1. Knight, Malcolm, 1998. "Developing Countries and the Globalization of Financial Markets," World Development, Elsevier, vol. 26(7), pages 1185-1200, July.
  2. Geert Bekaert & Campbell R. Harvey, 1997. "Foreign Speculators and Emerging Equity Markets," William Davidson Institute Working Papers Series 79, William Davidson Institute at the University of Michigan.
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  8. Levine, Ross & Renelt, David, 1991. "A sensitivity analysis of cross-country growth regressions," Policy Research Working Paper Series 609, The World Bank.
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  13. J Benson Durham, . "Emerging Stock Market Liberalisation, Total Returns, and Real Effects: Some Sensitivity Analyses," QEH Working Papers qehwps51, Queen Elizabeth House, University of Oxford.
  14. Borensztein, E. & De Gregorio, J. & Lee, J-W., 1998. "How does foreign direct investment affect economic growth?1," Journal of International Economics, Elsevier, vol. 45(1), pages 115-135, June.
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  18. Sandmo, Agnar, 1970. "The Effect of Uncertainty on Saving Decisions," Review of Economic Studies, Wiley Blackwell, vol. 37(3), pages 353-60, July.
  19. Henry, Peter Blair, 2000. "Do stock market liberalizations cause investment booms?," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 301-334.
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  21. Sebastian Edwards, 1995. "Why are Saving Rates so Different Across Countries?: An International Comparative Analysis," NBER Working Papers 5097, National Bureau of Economic Research, Inc.
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