The Role of Emerging Capital Market in Capital Allocation: The Case of Ethioipian Capital Market
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Date
2024-03
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Addis Ababa University
Abstract
One of the remarkable phenomena of the 21st century is the globalization of both factor and product markets, which has significantly transformed economies worldwide. This globalization has created a myriad of opportunities, particularly for developing countries, by providing them with greater access to a diverse array of products and services from developed nations. For these emerging economies, this access means not only the ability to import advanced technologies and high-quality goods but also the potential to integrate into global supply chains. Such integration can spur local industries, enhance productivity, and ultimately contribute to economic growth. Conversely, developed countries also reap substantial benefits from this interconnectedness. They gain access to a wealth of opportunities for diversification, allowing them to explore new markets and reduce dependency on their domestic economies. Additionally, globalization enables these nations to tap into inexpensive labor pools in developing regions, which can significantly lower production costs. Moreover, the availability of untouched natural resources in various parts of the world presents an avenue for developed countries to secure essential materials that are critical for their industries. Lastly, the presence of high purchasing power in certain global markets allows developed nations to expand their consumer base, driving further economic growth and innovation.
The establishment of deep, liquid, and well- regulated capital markets are instrumental in financing the economy and are the foundation for thriving private sector, a key driver of jobs and growth. The study endeavors to investigate the role of the capital market that helps to ensure the financial systems efficiency, stability, risk management, preventing costly crises, and helping channel savings toward capital that is essential for economic development and poverty reduction.
The paper utilized financial development, trading volume, liquidity, information disclosure as a proxy measure of capital market performance. It also used profitability, shareholders wealth creation, and long- term business sustainability to measure capital allocation efficiency.
Key words: Capital allocation; Capital Market authority; Market efficiency.