IDEAS home Printed from
   My bibliography  Save this paper

Stock market development and financial deepening in developing countries : some correlation patterns


  • Dong He
  • Pardy, Robert


Programs to develop securities markets are now a common feature of World Bank financial sector loans. Stock market development in particular is receiving considerable attention, especially the legal and institutional underpinnings required for successful stock market development. The financial underpinnings needed have received less study. The authors contribute to such a study by exploring the relationship between the degrees of financial depth and stock market development in an economy. Using a simple indicator of stock market development and several indicators of financial depth, and using cross-sectional data from 32 developing countries for 1984-90, they find a strong correlation between the two factors. Time-series data from 19 of these countries (for 1978-90) show similar correlations for most Asian countries, but not for other countries in the sample. Also, the correlations of the Asian data are strongest after the mid-1980s. They test a"threshold hypothesis"that a certain level of financial depth may be necessary to allow stock market development to take off. They find that available data do not support the hypothesis. The results suggest that financial depth is a significant factor in stock market development in most developing countries, but that country specific factors (such as industrial policy and structure, foreign investment controls, and stock market regulatory and operational infrastructure) have an equally strong influence on stock market growth. Case studies of economies in which stock market development has been successful would help elucidate the interplay between these factors.

Suggested Citation

  • Dong He & Pardy, Robert, 1993. "Stock market development and financial deepening in developing countries : some correlation patterns," Policy Research Working Paper Series 1084, The World Bank.
  • Handle: RePEc:wbk:wbrwps:1084

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Pardy, Robert, 1992. "Institutional reform in emerging securities markets," Policy Research Working Paper Series 907, The World Bank.
    2. King, Robert G. & Levine, Ross, 1992. "Financial indicators and growth in a cross section of countries," Policy Research Working Paper Series 819, The World Bank.
    3. Dailami, Mansoor & Atkin, Michael, 1990. "Stock markets in developing countries : key issues and a research agenda," Policy Research Working Paper Series 515, The World Bank.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Ferro, Gustavo, 2000. "¿Vale la pena tener intermediarios financieros propios? Un examen a la literatura reciente
      [Does it worth having local financial intermediaries? An examination onto recent literature]
      ," MPRA Paper 15359, University Library of Munich, Germany.
    2. Ferro, Gustavo & Antón Rodríguez, Martín, 2007. "Crédito, producto y eficiencia en la producción de crecimiento
      [Credit, production and efficiency in the production of growth]
      ," MPRA Paper 15094, University Library of Munich, Germany, revised Mar 2009.


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:1084. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.