Equity Markets and Economic Development: What Do We Know?

36 Pages Posted: 20 Sep 2006

See all articles by Thomas Lagoarde-Segot

Thomas Lagoarde-Segot

Euromed Management Marseille

Brian M. Lucey

Trinity Business School, Trinity College Dublin; Abu Dhabi University - College of Business Administration; Shanghai Lixin Univeristy of Accounting and Finance

Date Written: September 2006

Abstract

The objective of this paper is to review the transmission mechanisms uniting equity market development and economic growth in developing countries. We find that the theoretical impact of equity markets is ambiguous. At the domestic level, the allocation function of equity markets appears conditioned by the extent of informational efficiency. Turning to international linkages, theoretical models suggest that equity market integration lowers the cost of capital, increases financial vulnerability and has a mixed impact on capital flows. Taking this into account, two conclusions arise. First, equity market development policies should focus on reaching and maintaining adequate levels of institutional transparency. Second, the optimal degree of international integration depends on the society's preference between international accessibility and domestic stability.

Keywords: Equity Markets, Economic Development

JEL Classification: G11, G12, G15

Suggested Citation

Lagoarde-Segot, Thomas and Lucey, Brian M., Equity Markets and Economic Development: What Do We Know? (September 2006). IIIS Discussion Paper No. 182, Available at SSRN: https://ssrn.com/abstract=931404 or http://dx.doi.org/10.2139/ssrn.931404

Thomas Lagoarde-Segot (Contact Author)

Euromed Management Marseille ( email )

Domaine de Luminy
BP 921 13288 Marseille Cedex 9, 13288
France

Brian M. Lucey

Trinity Business School, Trinity College Dublin ( email )

The Sutherland Centre, Level 6, Arts Building
Dublin 2
Ireland
+353 1 608 1552 (Phone)
+353 1 679 9503 (Fax)

Abu Dhabi University - College of Business Administration ( email )

PO Box 59911
Abu Dhabi, Abu Dhabi 59911
United Arab Emirates

Shanghai Lixin Univeristy of Accounting and Finance ( email )

Shanghai
China

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