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

  • Received June 26, 2021;
    Accepted August 2, 2021;
    Published August 6, 2021
  • Author(s)
  • DOI
  • Article Info
    Volume 18 2021, Issue #3, pp. 74-81
  • Cited by
    5 articles

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This work is licensed under a Creative Commons Attribution 4.0 International License

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 analysis, 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 significant 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 macroeconomic policies.

This study was funded by the Industrial University of Ho Chi Minh City (IUH), Vietnam (grant number: 21/1TCNH01).

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    • Figure 1. GDP per capita and SMD of Asian EMDEs in 2019
    • Table 1. Summary of the variables
    • Table 2. Summary statistics
    • Table 3. Correlation matrix
    • Table 4. Estimated results
    • Table 5. Model testing results
    • Table 6. Results using the GMM
    • Conceptualization
      Toan Ngoc Bui
    • Formal Analysis
      Toan Ngoc Bui, Thu-Trang Thi Doan
    • Methodology
      Toan Ngoc Bui
    • Software
      Toan Ngoc Bui
    • Validation
      Toan Ngoc Bui, Thu-Trang Thi Doan
    • Visualization
      Toan Ngoc Bui, Thu-Trang Thi Doan
    • Writing – review & editing
      Toan Ngoc Bui, Thu-Trang Thi Doan
    • Data curation
      Thu-Trang Thi Doan
    • Investigation
      Thu-Trang Thi Doan
    • Writing – original draft
      Thu-Trang Thi Doan