“The impact of stock market development on economic growth: A GMM approach”

This study investigated the impact of stock market development (SMD) on economic growth (EG) among emerging markets and developing economies (EMDEs) in Asia. The data sample includes eight Asian EMDEs (China, Indonesia, India, Sri Lanka, Malaysia, the Philippines, Thailand, and Vietnam) from 2008 to 2019. These countries share several similarities, so this ensures reliability of the results. Regarding the analy- sis, the generalized method of moments (GMM) is used for the estimation. The results show that SMD exerts a positive impact on EG. This finding confirms the importance of SMD in improving efficient capital accumulation and allocation, and also allows investors to reduce risks and increase liquidity, which will boost EG. Further, the sig- nificant influence of domestic credit (DC), control of corruption (CC), and inflation (INF) on EG is also highlighted. These findings are valuable empirical evidence that greatly contributes to reinforcing the suitability of classical economic growth theories, especially the theory of endogenous growth. They are also essential to EMDEs in Asia. Accordingly, the EMDEs should develop effective policies to improve the stock market’s scale, which contributes substantially to the development of EG. Moreover, these economies need to pursue many appropriate policies in sync, such as stimulating SMD, improving governance effectiveness and implementing effective macroeco- nomic policies. finds a significant impact of DC, CC, and INF on EG. This suggests that the significant influence of DC, CC, and INF on EG is also highlighted. Generally, these findings are important for EMDEs in on them, EMDEs must develop effective policies to improve the stock market’s scale, which substantially to the development of EG. have low or middle income, it is important to have a synchronous combination of various policies to stimulate improve governance effectiveness, implement effective macroeconomic policies, to to promote comprehensive EG.


INTRODUCTION
The impact of SMD on EG is an interesting topic that has been mentioned in some empirical studies. Generally, SMD plays a crucial role in promoting EG. Therefore, many countries have developed policies for boosting SMD to promote EG (King & Levine, 1993a, 1993bNguyen & Bui, 2019;Pradhan et al., 2014;Reinhart & Tokatlidis, 2003). To formulate and implement these policies effectively, it is necessary to create reliable empirical evidence on the influence of SMD on EG. However, theories of this impact are relatively vague. It is because most of them have only mentioned the impact of financial development -which is mainly the banking sector -on EG. Meanwhile, the credit market is unable to operate well without the stock market (Cho, 1986). This topic is still not commonly considered in empirical studies. Further, there exist contradictory views in the current studies. Besides, this has received little attention in empirical studies in Asia, especially among the EMDEs. The term EMDEs is used by the International Monetary Fund (IMF) to refer to the countries that are experiencing developing market economies and in transition to developed countries (Mody, 2004). Their similar features are their low or middle income but rapid economic growth, and more especially the adoption of a free-market system for boosting EG (Hoskisson et al., 2000). On the

LITERATURE REVIEW
SMD is one of the most vital indicators influencing EG (Beck & Levine, 2004;Naceur & Ghazouani, 2007). Its effect on EG can be explained by several classical theories such as the classical growth theory (Ricardo, 1817;Smith, 1776), Keynes' growth theory (Keynes, 1936), the neoclassical growth theory (Solow, 1956;Swan, 1956), and the endogenous growth theory (Barro, 1991;Lucas, 1988;Mankiw et al., 1992). Apparently, all of them affirmed the importance of capital to EG. Moreover, the neoclassical growth theory mentioned the role of labor force and technology. Besides, both Keynes' growth theory and the endogenous growth theory assumed that EG is significantly affected by government policies. In general, the endogenous growth model is superior to the previous ones. However, it has the same limitation as others in that it does not consider the role of the stock market (Pan & Mishra, 2017). This limitation has been found in several empirical studies. Specifically, Schumpeter (1911) was the first to investigate the effect of financial development on EG. Then this impact was examined by McKinnon (1973), Shaw (1973), Rousseau and Wachtel (2000), Xu (2000), Rousseau and Vuthipadadorn (2005), and Botev et al. (2019). From another perspective, Olwenyand and Kimani (2011) only analyzed the influence of the financial market on EG in Kenya. Generally, most of them reported the positive effect of financial development on EG. Nevertheless, there is still a big limitation in analyzing financial development only through the banking sector and not through the stock market. Meanwhile, through SMD, capital accumulation and allocation can be performed efficiently, thereby affecting EG. Even without the stock market, the credit market cannot operate well (Cho, 1986). Consequently, the impact of SMD on EG has received a lot of attention in a large number of empirical studies.
SMD can have a positive impact on EG. This is what has been frequently highlighted in the previous studies. Accordingly, SMD enables effective capital accumulation and allocation, which in turn promotes EG. More than that, SMD allows investors to reduce their investment risks and raise liquidity (Ngare et al., 2014). It can be said that SMD is a keystone in economic activities. The positive influence of SMD on EG has been revealed by Atje and Jovanovich (1993), Korajczyk (1996) A limited number of studies, namely those of Demirguoc-Kunt and Levine (1996) and Pan and Mishra (2017), have reported a negative impact of SMD on EG. Specifically, SMD stimulates investment in the stock market, which leads to a decrease in savings rate, since investors have a consumption tendency rather than earning one, thereby reducing investment in the economy, as well as capital accumulation in the future (Demirguoc-Kunt & Levine, 1996). On the other hand, SMD can increase financial instability, which will reduce EG. Further, the excessive and badly controlled capital from the stock market to the economy may hinder EG.
Broadly speaking, most of the earlier studies only investigated the impact of financial development, which is focused on the banking sector on EG. The impact of SMD on EG is still a theoretically vague topic that is not frequently empirically studied. There are also contradictory opinions on this matter. In specific, a majority of these studies reported a positive effect of SMD on EG. However, some researchers argue that SMD can negatively affect EG. On the other hand, only a limited number of empirical studies have examined the impact of SMD on EG in Asian countries, more especially in EMDEs. In modern literature, this can be seen as a big limitation. Therefore, it can be said that the impact of SMD on EG in Asian EMDEs is an interesting research topic and there are still many gaps that need to be explored.
For EMDEs in Asia, SMD is improving significantly, this makes an important contribution to the promotion of the efficient accumulation and allocation of capital, which in turn can promote EG. Based on this, the research hypothesis proposed in this study is as follows: H 0 : SMD has a positive impact on EG in Asian EMDEs.

ECONOMETRIC METHODOLOGY AND DATA
This study analyzed the impact of SMD on EG in Asian EMDEs using the following equation: where EG is economic growth. EG is measured by the logarithm of GDP per capita that was used by Cooray (2010)       Note: *** -significant at 1%, ** -significant at 5%.

EMPIRICAL ANALYSIS
The results indicate that EG is negatively related to INF. Meanwhile, the other variables are positively associated with EG (Table 3). In addition, there is no serious multicollinearity in the model due to a low correlation between independent and control variables. Note: ** -significant at 5%, *** -significant at 1%.
As can be seen from Table 5, the model is free of multicollinearity issues. However, autocorrelation and heteroscedasticity issues are statistically significant. As a result, the GMM suggested by Arellano and Bond (1991) was used to estimate the most reliable results. Note: *** -significant at 1%, ** -significant at 5%, and *significant at 10%.
The result using the GMM is statistically significant. Also, both Sargan and Arellano-Bond tests are appropriate (Table 6). This result is thus eligible to be used. Accordingly, the estimation result (1) takes the following form: This study reveals a positive influence (0.002) of SMD on EG in Asian EMDEs. This confirms the importance of SMD in improving efficient capital accumulation and allocation, and also allows investors to reduce risks and increase liquidity, thereby promoting EG. The finding is consistent with what was highlighted by Atje and Jovanovich (1993), Korajczyk (1996)   shows that credit and SMD play an important role in improving the ability to mobilize and allocate capital in the economy, which will boost EG. Not only that, the effective implementation of CC often brings many benefits to activities in the economy, which will also boost EG. However, if INF is too high, it can create many difficulties for the economy, which will hinder EG. Thus, besides the significant impact of SMD, EG is also substantially affected by economic growth through the banking sector, the effectiveness of the government's control of corruption, and inflation rate. These findings confirm that the impact of SMD on EG is suitable to classical economic growth models, especially the endogenous growth model. In addition, this study highlights the specific impact of SMD on EG in Asian EMDEs, greatly contributing to filling the current literature gap.

CONCLUSION
This study examines the impact of SMD on EG in Asian EMDEs over the period 2008-2019. It analyzes the complete data sample of eight Asian EMDEs, including China, Indonesia, India, Sri Lanka, Malaysia, the Philippines, Thailand, and Vietnam. To reach this objective, the GMM has been adopted. The result reports that SMD has a positive influence on EG in Asian EMDEs. This is consistent with classical economic growth theories, especially the endogenous growth theory. However, mainly investigating the explicit impact, the study resolves the existing limitation in the classical economic growth theories and previous studies by restricting financial development through the banking sector operation. In addition, this study finds a significant impact of DC, CC, and INF on EG. This suggests that the significant influence of DC, CC, and INF on EG is also highlighted. Generally, these findings are important for EMDEs in Asia. Based on them, EMDEs in Asia must develop effective policies to improve the stock market's scale, which contributes substantially to the development of EG. Moreover, EMDEs typically have low or middle income, so it is important to have a synchronous combination of various policies to stimulate SMD, improve governance effectiveness, implement effective macroeconomic policies, especially to proceed to promote comprehensive EG.
In general, this study is very successful in achieving its objective. More importantly, the study reports some interesting findings and fills the existing gap in the literature. Based on them, researchers can develop new proposals by expanding data in more countries or measuring SMD using different proxies.