Stock Market Liquidity Impact on Economic Development

Lígia Febra, Maria Fernandes and Tiago Silva
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Lígia Febra: ESTG, Polytechnic of Leiria
Tiago Silva: ESTG, Polytechnic of Leiria

A chapter in Rethinking Management and Economics in the New 20’s, 2023, pp 99-117 from Springer

Abstract: Abstract Purpose—Stock market liquidity is usually considered important for countries economic development. The main aim of this study is to bring new evidence of stock market liquidity impact on economic development using a wider indicator of economic development, the Human Development Index (HDI). Design/Methodology/approach—Data used ranges from 1990 to 2015 and includes 59 countries. Nonparametric correlation tests between HDI and stock market liquidity are run for each country. Additionally, a multivariate regression analysis is performed to evaluate the impact of stock market liquidity on economic development, controlling for stock market size and economic growth. Findings—The results obtained reinforce the importance of stock market liquidity for countries economic development, increasing society’s well-being and not only its income. Further, this positive relationship increases after 2008 financial crisis, but it is not significant for developing countries. Originality/value—The main contribute of this paper is to analyze whether stock market liquidity impacts economic development besides economic growth as, instead of the usual measure for economic development, Gross Domestic Product (GDP), a more comprehensive indicator was used in the current study: The Human Development Index (HDI). In addition to the quantitative aspects of economic growth, grasped by GDP, qualitative features related with citizens wellbeing are taken into consideration with HDI. The results suggest more liquid stock markets promote lower cost of mobilizing savings and therefore facilitate better, not only more, investments.

Keywords: Stock market liquidity; Amihud’s (2002) illiquidity measure; Economic development; Human Development Index (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:spr:prbchp:978-981-19-8485-3_4

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DOI: 10.1007/978-981-19-8485-3_4

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