An empirical study on the relationship between stock market development and economic growth in Namibia
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Date
2015
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Abstract
The “supply-leading” hypothesis argues that the development of the monetary system leads to economic growth by channelling public savings to investments (McKinnon, 1973; Shaw, 1973). Patrick (1966) suggests the “demand-following” hypothesis, which says that as an economy develops demand for financial services increase and leads to the development of financial institutions and their financial assets and liabilities. A third view is that there can be a bi-directional (feedback) relationship between Stock Market Development (SMD) and economic growth. By employing EVIEWS, this study tests these hypotheses in the case of Namibia for the period 1995Q4 to 2013Q3. The purpose of this study is to examine the long-run relationship between Stock Market Development (SMD) and economic growth and the direction thereof, by applying the Johansen co-integration analysis, Unit Root Tests, and Toda and Yamamoto (1995) Granger causality tests. The study employs three measures of SMD, namely; 1) Market Capitalization ratio; 2) Total Value of Shares Traded ratio; and 3) Stock Market Turnover ratio. The results from the co-integration test indicate a long-run relationship between economic growth proxied by Real Gross Domestic Product (RGDP) and stock market indicators bearing from SMD to economic growth. The finding supports the “supply-leading” hypothesis, which is incongruous with the findings of Sunde (2013) whose study supports the “demand-following” hypothesis.
Description
A thesis submitted in fulfilment of the requirements for the Degree of Master of Business Administration
Keywords
Stock market, Economic growth, Namibia