Stock market development and economic growth: Evidence from seven sub-Sahara African countries

• Published in: Journal of economics and business 2009-03, Vol.61 (2), p.162-171
• Main Authors: Enisan, Akinlo A., Olufisayo, Akinlo O.
• Format: Article
• Language: English
• Subjects: ARDL and sub-Saharan; Causality; Economic growth; Economic models; Manycountries; Regression analysis; Securities markets; Stock exchanges; Stock market development; Stock market development Economic growth Causality ARDL and sub-Saharan; Studies
• ISSN: 0148-6195; 1879-1735
• DOI: 10.1016/j.jeconbus.2008.05.001

The paper examines the long run and causal relationship between stock market development and economic growth for seven countries in sub-Saharan Africa. Using the autoregressive distributed lag (ARDL) bounds test, the study finds that the stock market development is cointegrated with economic growth in Egypt and South Africa. Moreover, this test suggests that stock market development has a significant positive long run impact on economic growth. Granger causality test based on vector error correction model (VECM) further shows that stock market development Granger causes economic growth in Egypt and South Africa. However, Granger causality in the context of VAR shows evidence of bidirectional relationship between stock market development and economic growth for Cote D’Ivoire, Kenya, Morocco and Zimbabwe. In Nigeria, there is a weak evidence of growth-led finance using market size as indicator of stock market development. Based on these results, the paper argues that stock markets could help promote growth in Africa. However, to achieve this goal, African stock markets need to be further developed through appropriate regulatory and macroeconomic policies.