Stock Market Performance and Economic Growth: Empirical Evidence on Selected African Countries (2004– 2018)

Getnet, Demeke

Stock Market Performance and Economic Growth: Empirical Evidence on Selected African Countries (2004– 2018)

Files

Demeke Getnet.pdf (820.11 KB)

Date

2020-10

Authors

Getnet, Demeke

Publisher

A.A.U

Abstract

This study examines thecausal relationship between stock market performance and economic growth in selected African countrieswhich already haveimplemented stock exchange market for the period 2004-2018 using annual secondary data obtained from world development indicator. The major objective was to empirically analyze using granger causality test and examine the link between stock market performance and economic growth i.e. whether stock market performance causes economic growth, or it is a result of improved economic activity.Fixed effect estimation was utilized to determine how stock market performance affects economic growth of sampled countries based on their market capitalization ratio which was determined by running the Hausman test. The result disclosed that there is a positive and significant relationship between stock market performance and economic growth in these countries. Finally,Granger causality test was used in order to find the direction of causality between stock market performance and economic growth within the estimated model. The findings depicted that the causality between economic growth and stock market runs entirely in one direction from the stock market performance to economic growth. As a result, it was inferred that changes in stock exchange of the countries under study reflect the macro economic conditions of the countries and can therefore be used to anticipate the future path of economic growth. Much work leftovers to be done to best recognize the relationship between stock market performance and economic growth. Although this study examines the relevance of stock market performance on economic growth, it does not investigate the individual country cases nor analyses when is the right time for countries to get into stock market implementation.