An examination of the role of stock market development in economic growth in SADC: A panel VAR approach
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Date
2023
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Publisher
University of Namibia
Abstract
This thesis examines the impact of stock market development on economic growth in five SADC countries, namely Botswana, Malawi, Mauritius, Namibia, and South Africa for the period starting from 2004 to 2019. It tests for the existence of a long-run relationship as well the presence of a causal relationship between stock market development and economic growth. The study selects interactions of stock market development with the real economy using panel vector autoregression (VAR) based Granger causality tests as well as impulse response functions and forecast error variance decomposition to interpret the results. Using stock market capitalization, total value traded and stock market turnover as measures of stock market development, the study aims to determine whether these variables have an impact on GDP growth. The results suggest that there is no cointegration among the variables, suggestive of the fact that there exists no long run relationship. In terms of the short-run causal relationships, the Pairwise Granger Causality tests reveal that there is evidence of a short-term unidirectional causal relationship between stock market development and economic growth, running from stock market development to GDP growth. These results are consistent with the supply leading hypothesis, as was originally postulated by Schumpeter (1911). Also commonly referred to as the finance-led growth hypothesis or the finance-growth nexus, it assumes that causality flows from financial sector development to economic growth and not the other way round; and thus, stock market development is deemed the driver of economic growth. Given the importance of stock market development to economic growth, the study recommends prioritisation of stock market activities in the form on government policy interventions, diversification of stock market products and automation of trading system to ensure enhanced performance of stock markets, as a driver for increased economic growth.
Description
A mini thesis submitted in partial fulfilment of the requirements for the Degree of Master of Science (economics)
Keywords
Stock market development, Economic growth in SADC, Panel Vector Autoregression (VAR)