Impact of Stock Market Development on Economic Growth: Evidence from Lower Middle Income Countries

Panel data models play an important role in consequence of stock market development on economic growth in lower-middle income regions. Stock market development represented through three indicators namely total stock value traded ratio (VTR), market capitalization ratio (MCR) and turnover ratio (TR). The panel data of 20 lower-middle income countries gathered from the period of 1990 to 2012. The study examines the impact of stock market development on economic growth by panel data techniques by fixed effects and random effects by applying Hausamn test. Overall results suggests that there is positive and significant impact of stock market development on economic growth. The findings show a positive relationship between stock market development and economic growth. This study also measures the exact impact of stock market development on growth of economy by control variables such as financial depth (FD), investment (INV), foreign direct investment (FDI), trade openness (TO) and inflation (INF) but stock market development which is TR (ratio of total value traded to the total value of listed shares) has insignificant relationship with economic growth. This study is very beneficial for making effective decisions about financial development, stock market development and economic development by prevailing stock market conditions of countries.