Are Small Stock Markets Different?
Posted: 27 May 2003
Recent literature has established a positive correlation between financial development and economic growth. While papers such as Bencivenga, Smith and Starr (1995) identify potential nonlinearities in this relationship, empirical research to date has allowed for only linear relationships. This paper uses regression tree techniques to investigate whether the partial correlation between growth and financial development differs based on countries' levels of financial and economic development. As in previous studies, growth and financial development are positively correlated in countries with high levels of market capitalization; however, this relationship does not appear to hold for countries with low levels of market capitalization.
Keywords: Stock markets, economic growth, financial development
JEL Classification: O40, O16
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