Opening a Stock Exchange

Abstract

Nearly sixty countries have opened their first national stock exchanges since 1950. I investigate the effects on economic growth of these openings in two ways. First, economic growth histories of at least five years are available for seventeen of these countries. On average, the countries that opened stock markets grew faster than a priori similar countries that did not open exchanges; however, the growth rate of investment was lower in the countries opening exchanges over periods of five and ten years. Second, I use two stage least squares to account for possible endogeneity of the decision to open a stock market. Even controlling for this endogeneity, the estimated correlation between opening a stock exchange and economic growth is positive and statistically significant.

JEL Classification: O4