SOURCE:

Faculty: Management Sciences
Department: Banking And Finance

CONTRIBUTORS:

Achugbu, A. A.
Mbachu, A.

ABSTRACT:

The study empirically probed the impact of major stock market indices on economic growth of developed, emerging and developing economies. The specific objectives of this study are two-fold, validating empirically if the stage of economic development in developed, emerging and developing economies has any impact on the stock market size and economic growth and whether the stock market liquidity in developed, emerging and developing economies has any effect on economic growth. The variables used in the analysis were subjected to two types of unit root tests, Im, Persaran and Shin test and Levin, Lin and Chu test, to determine whether they are stationary series or non-stationary series. Correlation analysis of the employed variables was examined. Two panel regression analyses were carried out (Fixed and Random-Effect) and Husman test was used to decide which of the result to abide by. It was observed that in developed economies, stock market size measured in terms of market capitalisation ratio (MCR) was found to have significant positive effect on economic growth. The experience was the same in emerging and developing economies but while the coefficient was significant for emerging economies, it was not significant in developing economies. More so, interest rate channel was found to be relevant in developed, emerging and developing economies, especially when the impact of stock market size was considered on economic growth. However, while interest rate exerted positive impact on economic growth in developed economies, it was the reverse in emerging and developing economies. Furthermore, stock market liquidity measured in terms of value traded ratio (VTR) and turnover ratio (VTR) were found to have mixed impact on economic growth of developed, emerging and developing economies. In a more specific term, VTR was found to exert significant positive effect on economic growth of developed and emerging economies while its effect on developing economies was inverse, though insignificant. Similarly, TOR was estimated to affect economic growth inversely in developed and emerging economies, but the effect was significant in developed economies; it was not in emerging economies. The positive effect of TOR in developing economies was not significant. It was only in emerging economies that the interest rates channel had significant impact on the relationship between stock market liquidity and economic growth. It is therefore imperative for the government to factor in the stage of economic development when formulating policies that are meant to stimulate economic growth through stock market size and stock market liquidity.