Stock Market Development and Long-Run Growth

32 Pages Posted: 20 Apr 2016

See all articles by Sara Zervos

Sara Zervos

World Bank

Ross Levine

University of California, Berkeley - Haas School of Business; National Bureau of Economic Research (NBER)

Date Written: November 30, 1999

Abstract

Is there a strong empirical association between stock market development and long-term economic growth? Cross-country regressions suggest that there is a positive and robust association.

Levine and Zervos 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 of stock market development and economic growth 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. Much work remains to be done to shed light on the relationship between stock market development and economic growth. Careful case studies might help identify causal relationships and further research could be done on the time-series property of such relationships.

Research should also be done to identify policies that facilitate the development of sound securities markets.

This paper - a product of the Finance and Private Sector Development Division, Policy Research Department - is part of a larger effort in the department to study the relationship between financial systems and economic growth. The study was funded by the Bank's Research Support Budget under the research project Stock Market Development and Financial Intermediary Growth (RPO 679-53).

Suggested Citation

Zervos, Sara and Levine, Ross Eric, Stock Market Development and Long-Run Growth (November 30, 1999). World Bank Policy Research Working Paper No. 1582. Available at SSRN: https://ssrn.com/abstract=614946

Sara Zervos (Contact Author)

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

Ross Eric Levine

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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