A Pathway towards Sustainable Economic Development: The Role of Stock Market Development from Cross-Country Reference
DOI:
https://doi.org/10.47743/saeb-2026-0012Keywords:
stock market development, economic development, Panel VAR, cross-country analysis.Abstract
Stock market is the financial enabler of sustainable economic development as stock market enables the corporations with long-term capital. The aim of this study is to estimate the effect of stock market development on the development of an economy. The article is grounded on the sample of 51 developing and 32 developed countries from the year 1991 to 2022. The study has considered two stock market development indicators i.e., stock market capitalization (MCAP) and listed domestic companies, and applied the panel VAR model. In the short run, both the indicators of stock market development are positively related with the economic advancement of the developed as well as developing countries. Interestingly, investment and government expenditure are adversely associated with the economic progress of developed as well as developing countries. Furthermore, savings and trade are positively connected with the economic development of developing countries whereas this linkage is adverse in the developed countries. Panel causality test reports bidirectional relationship between MCAP and economic performance. This result supports the feedback theory of financial system as MCAP and economic development reinforce each other. Variance decomposition test and IRF are also applied to support the above results. This study is significant for the government and policymakers in formulating effective strategies for developing the stock market and views it as an important avenue for mobilizing the capital towards innovation, sustainable environment and governance practices.
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