The Effects of Stock Market Development on Growth and Private Investment in Lower-Income Countries

Posted: 19 Jun 2019

Date Written: 2002

Abstract

Recent literature argues that stock market liberalisation has positive long- and short-run effects on macroeconomic growth and private investment, respectively. However, given a sample of up to 64 countries from 1981 through 1998, positive results for long-run growth are largely dependent on the inclusion of higher-income countries in regression samples, which 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, lower levels of country credit risk, and higher levels of legal development. Similarly, using a sample of 26 countries from 1981 through 1998, lagged equity price appreciation seems to boost private investment growth in the short-run, but only in rich countries. All in all, these results imply subdued enthusiasm regarding emerging equity market development.

Keywords: stock market liberalisation, economic growth, private investment

JEL Classification: G1, G2, O16, F36

Suggested Citation

Durham, J. Benson, The Effects of Stock Market Development on Growth and Private Investment in Lower-Income Countries (2002). Emerging Markets Review, Vol. 3, No. 3, 2002. Available at SSRN: https://ssrn.com/abstract=3402615

J. Benson Durham (Contact Author)

Cornerstone Macro LLC ( email )

1330 Sixth Avenue, 5th Floor
New York, NY 10019
United States

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