The Effect of Financial Market Capitalisation on Economic Growth and Unemployment in South Africa

Wandile Allan Ngcobo (), Sheunesu Zhou and Strinivasan S. Pillay
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Wandile Allan Ngcobo: Department of Economics, University of Zululand, KwaDlangezwa 3886, South Africa
Sheunesu Zhou: Department of Economics, University of Zululand, KwaDlangezwa 3886, South Africa
Strinivasan S. Pillay: Department of Public Administration and Economics, Durban University of Technology, Durban 4001, South Africa

Economies, 2025, vol. 13, issue 3, 1-18

Abstract: The dynamic impact of financial market capitalisation on South Africa’s unemployment and economic growth is empirically explored in this study using the finance-augmented Solow model framework. South Africa’s high rate of structural unemployment and its robust financial market, which is at the same standard as those in countries with advanced economies, served as the driving force for the study. Evidence for the dynamic link is presented by a time series analysis that employed the VECM model. South Africa continues to face persistent macroeconomic issues, including stagnant economic growth, declining investment, and rising unemployment. Market capitalisation, net acquisition of financial assets, and foreign direct investment all have a favourable and substantial effect on economic growth. According to VECM estimation results, unemployment has a detrimental effect on economic growth. Also, market capitalisation has significant positive effects on economic growth. Unemployment and economic growth are inversely related, thus unemployment has an adverse effect on economic growth. According to the findings, financial markets have distinct effects on economic growth because of their various functions within the economy. It was also shown that foreign direct investment has a crucial role in increasing economic growth. This implies the important role that the financial market and systems have in South Africa’s economic growth. The article advises authorities to keep enacting measures to boost capital market growth to increase employment, while also making sure that other structural issues affecting the labour market are effectively addressed to stimulate job creation.

Keywords: financial markets; economic growth; market capitalisation; Granger causality (search for similar items in EconPapers)
JEL-codes: E F I J O Q (search for similar items in EconPapers)
Date: 2025
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