Does Stock Market Capitalization Influences Economic Growth in Africa? : Evidence from Panel Data

Abstract

The question as to whether stock markets play a significantly positive role in influencing the rate at which economies grow has been seriously debated by economists as well as policymakers. The bone of contention, however, is the fact that the prevailing empirical evidences on the nexus between stock market capitalization and economic growth is still mixed. This study, therefore, aims at providing further evidence on the relationship between stock market capitalization and economic growth using recent data from a sample of African countries with well-functioning stock markets. A dynamic panel estimation approach is employed with a view to assessing the relative impact of stock market capitalization on economic growth in Africa. The results from the study reveal that raising stock market capitalization by a marginal average of 10% induces growth on average by 5.4% in countries studied. The positive and significant relationship between stock market capitalization and economic growth as found in this study provides encouraging signals for African countries to explore stock markets as a potential avenue for expediting economic growth. There is therefore a dire need for policymakers in Africa to direct attention towards the implementation of policy measures that will encourage the development of stock markets with a view to promoting economic growth.