Stock Market Development and Economic Growth: Evidence from Africa

Arising from the mixed results in existing literature on the relationship between stock market development indicators and economic growth for both developed and developing countries, this study sets out to reexamine the relationship between stock market development and economic growth with reference to Africa. Employing various panel estimation techniques and estimating models of stock market size and liquidity plus an aggregate stock market model, our results indicate that stock market development indicators positively and significantly affect economic growth. We also test for crosssectional dependence for the countries considered using the cross-section independence test of Pesaran. The results reveal that the null hypothesis of no cross-sectional dependence is rejected implying the existence of cross sectional dependence. In the light of our empirical findings, we make important policy recommendations: policy makers in Africa should encourage greater stock market development via sound macroeconomic policies coordination that will ensure further integration of African stock markets. Also, there should be a proper regulation of these stock markets to reduce all forms of distortions that will impede the efficiency of the stock markets