The Stock Market Development and Economic Growth Puzzle: Empirical Evidence from Africa

Gideon Boako () and Imhotep Alagidede ()
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Gideon Boako: University of the Witwatersrand Business School

Chapter 8 in Development Finance, 2017, pp 207-240 from Palgrave Macmillan

Abstract: Abstract This chapter contributes to the unending debate on whether stock market development causes economic growth, or the former is a result of the latter, or the two are mutually causal. By using two measures of stock market development (i.e. turn-over ratios of domestic shares and market capitalizations (%) of domestic listed firms) and four indicators of economic performance (i.e. GDP growth, net FDI flows, gross savings, and capital formation), we find that the relationship between stock market development and economic growth in Africa is rather mute. Implicitly, the supply-leading and demand-following hypothesis, as well as the mutually causal theories, is not supported by these results. It stands to reason therefore that the effect of either stock market development on economic growth or the reverse in Africa may occur through some other economic and/or financial channels.

Keywords: Stock Market Development; Economic Growth; Demand-following Hypothesis; Turnover Ratio; African Stock Exchange (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1057/978-1-137-58032-0_8

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