IDEAS home Printed from https://ideas.repec.org/p/wbk/wbrwps/1582.html
   My bibliography  Save this paper

Stock market development and long-run growth

Author

Listed:
  • Levine, Ross
  • Zervos, Sara

Abstract

The authors empirically evaluate the relationship between stock market development and long-term growth. The data suggest that stock market development is positively associated with economic growth. Moreover, instrumental variables procedures indicate a strong connection between the predetermined component in the long run. While cross-country regressions imply a strong link between stock market development and economic growth, the results should be viewed as suggestive partial correlations that stimulate additional research rather than as conclusive findings. Careful case studies might help identify causal relationships and further research could bedone on the time-series property of such relationships.

Suggested Citation

  • Levine, Ross & Zervos, Sara, 1996. "Stock market development and long-run growth," Policy Research Working Paper Series 1582, The World Bank.
    • Handle: RePEc:wbk:wbrwps:1582
    as

    Download full text from publisher

    File URL: http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/1996/03/01/000009265_3961019191539/Rendered/PDF/multi0page.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Jean-Jacques Laffont & Jean Tirole, 1988. "Repeated Auctions of Incentive Contracts, Investment, and Bidding Parity with an Application to Takeovers," RAND Journal of Economics, The RAND Corporation, vol. 19(4), pages 516-537, Winter.
    2. Grossman, Sanford J & Stiglitz, Joseph E, 1980. "On the Impossibility of Informationally Efficient Markets," American Economic Review, American Economic Association, vol. 70(3), pages 393-408, June.
    3. Harvey, Campbell R, 1995. "Predictable Risk and Returns in Emerging Markets," The Review of Financial Studies, Society for Financial Studies, vol. 8(3), pages 773-816.
    4. Levine, Ross & Zervos, Sara J, 1993. "What We Have Learned about Policy and Growth from Cross-Country Regressions?," American Economic Review, American Economic Association, vol. 83(2), pages 426-430, May.
    5. Robert J. Barro, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(2), pages 407-443.
    6. Andrei Shleifer & Lawrence H. Summers, 1988. "Breach of Trust in Hostile Takeovers," NBER Chapters, in: Corporate Takeovers: Causes and Consequences, pages 33-68, National Bureau of Economic Research, Inc.
    7. Demirguc-Kunt, Ash & Levine, Ross, 1996. "Stock Market Development and Financial Intermediaries: Stylized Facts," The World Bank Economic Review, World Bank, vol. 10(2), pages 291-321, May.
    8. Easterly, William & Rebelo, Sergio, 1993. "Fiscal policy and economic growth: An empirical investigation," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 417-458, December.
    9. Levine, Ross & Renelt, David, 1992. "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review, American Economic Association, vol. 82(4), pages 942-963, September.
    10. Chandavarkar, Anand, 1992. "Of finance and development: Neglected and unsettled questions," World Development, Elsevier, vol. 20(1), pages 133-142, January.
    11. Connor, Gregory & Korajczyk, Robert A., 1986. "Performance measurement with the arbitrage pricing theory : A new framework for analysis," Journal of Financial Economics, Elsevier, vol. 15(3), pages 373-394, March.
    12. Robert G. King & Ross Levine, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(3), pages 717-737.
    13. Levine, Ross & Zervos, Sara, 1993. "Looking at the facts : what we know about policy and growth from cross-country analysis," Policy Research Working Paper Series 1115, The World Bank.
    14. Alan J. Auerbach, 1988. "Corporate Takeovers: Causes and Consequences," NBER Books, National Bureau of Economic Research, Inc, number auer88-1, March.
    15. King, Robert G. & Levine, Ross, 1993. "Finance, entrepreneurship and growth: Theory and evidence," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 513-542, December.
    16. Bruno, Michael & Easterly, William, 1998. "Inflation crises and long-run growth," Journal of Monetary Economics, Elsevier, vol. 41(1), pages 3-26, February.
    17. Fischer, Stanley, 1993. "The role of macroeconomic factors in growth," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 485-512, December.
    18. Pagan, Adrian, 1984. "Econometric Issues in the Analysis of Regressions with Generated Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 221-247, February.
    19. Stern, Nicholas, 1989. "The Economics of Development: A Survey," Economic Journal, Royal Economic Society, vol. 99(397), pages 597-685, September.
    20. Saint-Paul, Gilles, 1992. "Technological choice, financial markets and economic development," European Economic Review, Elsevier, vol. 36(4), pages 763-781, May.
    21. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
    22. Gelb, Alan H., 1989. "Financial policies, growth, and efficiency," Policy Research Working Paper Series 202, The World Bank.
    23. Valerie R. Bencivenga & Bruce D. Smith, 1991. "Financial Intermediation and Endogenous Growth," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 195-209.
    24. Devereux, Michael B & Smith, Gregor W, 1994. "International Risk Sharing and Economic Growth," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(3), pages 535-550, August.
    25. Randall Morck & Andrei Shleifer & Robert W. Vishny, 1990. "The Stock Market and Investment: Is the Market a Sideshow?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(2), pages 157-216.
    26. Shleifer, Andrei & Vishny, Robert W, 1986. "Large Shareholders and Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 461-488, June.
    27. Korajczyk, Robert A, 1996. "A Measure of Stock Market Integration for Developed and Emerging Markets," The World Bank Economic Review, World Bank, vol. 10(2), pages 267-289, May.
    28. Demirguc-Kunt, Asli & Maksimovic, Vojislav, 1995. "Stock market development and firm financing choices," Policy Research Working Paper Series 1461, The World Bank.
    29. Bekaert, Geert & Harvey, Campbell R, 1995. "Time-Varying World Market Integration," Journal of Finance, American Finance Association, vol. 50(2), pages 403-444, June.
    30. Atje, Raymond & Jovanovic, Boyan, 1993. "Stock markets and development," European Economic Review, Elsevier, vol. 37(2-3), pages 632-640, April.
    31. Ghani, Ejaz, 1992. "How financial markets affect long run growth : a cross country study," Policy Research Working Paper Series 843, The World Bank.
    32. David Scharfstein, 1988. "The Disciplinary Role of Takeovers," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 55(2), pages 185-199.
    33. Bencivenga, Valerie R. & Smith, Bruce D. & Starr, Ross M., 1995. "Equity markets, transaction costs, and capital accumulation," Policy Research Working Paper Series 1456, The World Bank.
    34. Stiglitz, Joseph E, 1985. "Credit Markets and the Control of Capital," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(2), pages 133-152, May.
    35. Diamond, Douglas W & Verrecchia, Robert E, 1982. "Optimal Managerial Contracts and Equilibrium Security Prices," Journal of Finance, American Finance Association, vol. 37(2), pages 275-287, May.
    36. Bhide, Amar, 1993. "The hidden costs of stock market liquidity," Journal of Financial Economics, Elsevier, vol. 34(1), pages 31-51, August.
    37. Levine, Ross, 1991. "Stock Markets, Growth, and Tax Policy," Journal of Finance, American Finance Association, vol. 46(4), pages 1445-1465, September.
    38. Holmstrom, Bengt & Tirole, Jean, 1993. "Market Liquidity and Performance Monitoring," Journal of Political Economy, University of Chicago Press, vol. 101(4), pages 678-709, August.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Levine, Ross & Zervos, Sara, 1998. "Stock Markets, Banks, and Economic Growth," American Economic Review, American Economic Association, vol. 88(3), pages 537-558, June.
    2. John C. Anyanwu, 1998. "Stock Market Development And Economic Growth in Nigeria," Vision, , vol. 2(1), pages 33-38, January.
    3. Salvatore Capasso, 2006. "Stock Market Development and Economic Growth," WIDER Working Paper Series RP2006-102, World Institute for Development Economic Research (UNU-WIDER).
    4. Ross Levine, 1997. "Napoleon, Bourses, and Growth in Latin America," Research Department Publications 4106, Inter-American Development Bank, Research Department.
    5. Ross Levine, 1997. "Napoleón, bolsas y crecimiento en América Latina," Research Department Publications 4107, Inter-American Development Bank, Research Department.
    6. Levine, Ross, 2005. "Finance and Growth: Theory and Evidence," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 12, pages 865-934, Elsevier.
    7. Castaneda, Gonzalo, 2006. "Economic growth and concentrated ownership in stock markets," Journal of Economic Behavior & Organization, Elsevier, vol. 59(2), pages 249-286, February.
    8. Levine, Ross & Zervos, Sara, 1998. "Capital Control Liberalization and Stock Market Development," World Development, Elsevier, vol. 26(7), pages 1169-1183, July.
    9. Bekaert, Geert & Harvey, Campbell R. & Lundblad, Christian, 2005. "Does financial liberalization spur growth?," Journal of Financial Economics, Elsevier, vol. 77(1), pages 3-55, July.
    10. Trunin, Pavel (Трунин, Павел), 2015. "Analysis of the Level of Development of the Financial System in the Russian Federation [Анализ Уровня Развития Финансовой Системы В Российской Федерации]," Published Papers mn38, Russian Presidential Academy of National Economy and Public Administration.
    11. TRABELSI, Mohammed, 2002. "Finance and Growth : Empirical Evidence from Developing Countries, 1960-1990," Cahiers de recherche 2002-13, Universite de Montreal, Departement de sciences economiques.
    12. Hondroyiannis, George & Lolos, Sarantis & Papapetrou, Evangelia, 2005. "Financial markets and economic growth in Greece, 1986-1999," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 15(2), pages 173-188, April.
    13. Yohane Khamfula, 2005. "African capital markets and real sector investment," Journal of International Development, John Wiley & Sons, Ltd., vol. 17(4), pages 511-525.
    14. Guangdong Xu, 2022. "From financial structure to economic growth: Theory, evidence and challenges," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 51(1), February.
    15. Asli Demirgüç-Kunt & Ross Levine, 2008. "Finance, Financial Sector Policies, and Long-Run Growth," World Bank Publications - Books, The World Bank Group, number 28021, December.
    16. Naceur, Samy Ben & Ghazouani, Samir, 2007. "Stock markets, banks, and economic growth: Empirical evidence from the MENA region," Research in International Business and Finance, Elsevier, vol. 21(2), pages 297-315, June.
    17. Keith Blackburn & Niloy Bose & Salvatore Capasso, 2005. "Financial Development, Financing Choice and Economic Growth," Review of Development Economics, Wiley Blackwell, vol. 9(2), pages 135-149, May.
    18. Bushman, Robert M. & Smith, Abbie J., 2001. "Financial accounting information and corporate governance," Journal of Accounting and Economics, Elsevier, vol. 32(1-3), pages 237-333, December.
    19. James B. Ang, 2008. "A Survey Of Recent Developments In The Literature Of Finance And Growth," Journal of Economic Surveys, Wiley Blackwell, vol. 22(3), pages 536-576, July.
    20. Alessandro Giovannini & Maurizio Iacopetta & Raoul Minetti, 2013. "Financial Markets, Banks, and Growth : Disentangling the links," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(5), pages 105-147.

    Corrections

    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:1582. See general information about how to correct material in RePEc.

    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 bibliographic 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Roula I. Yazigi (email available below). General contact details of provider: https://edirc.repec.org/data/dvewbus.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.