Stock Market Performance and Economic Growth: Empirical Evidence on Selected African Countries (2004– 2018)
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Date
2020-10
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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.
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Keywords
Economic growth, Stock market performance