Stock Market Development and Long-Run Economic growth in Africa

Utilizing General Moment Method (GMM) and annual data of 11 developing economies from Africa over the period 1995–2014, this study investigated the relationship between economic growth and stock market development while controlling for the effect of the country instability which is utmost importance in investment decisions. The results of this study revealed that country instability has a negative and statistically significant effect on economic growth in Africa. This paper further reveals that market capitalization and stock values traded have a negative and insignificant effect on economic growth in Africa. In addition, the results of this study show that stock market turnover contributes positively to economic growth but it is statistically insignificant. Domestic investment, foreign direct investment and inflation influence positively economic growth in the countries under investigation while trade openness harms economic growth. These results give support to the recently empirical study for African stock markets. The study recommends that both policy makers and market managers reinforce the creditors’ right which may restore the confidence of investors and create a propitious economic environment from infrastructural improvement.