FDIST FDI stock  — total gross accumulated value of direct foreign investments in production sector as a percentage of GDP has been researched by many scholars, and has given ambiguous results.
Some prove positive impact on growth De Mello ; Alfaro et al. There has been a dispute among researchers and research results are different. Some studies find a negative sign Baro, ; Folster and Heckerson, and some of them positive Kelly, We should be careful in explaining these results, especially if we know that government sector plays an important role in SEE economies Picture 1. Figure 1 : Government spending share in GDP 14 countries from the sample, Therefore, we should be cautious in forecasting these impacts.
Being that sample of SEE countries with available data is small, the sample has been extended to the region of Central and Eastern Europe transition countries only, in order to have comparability with SEE transition countries. This is the reason of introducing another dummy variable DummySEE , which will distinguish between these two regions. We expect to have a negative sign with significant impact for this variable, since SEE countries, on average, had lower rates of growth compared to CEE countries, when we control for other variables from the model.
Figure 2: Inflation rate trends for sample countries According to results from previous research studies, we expect that more developed capital markets in SEE region contribute to economic growth. It is possible that these indicators STR, MCR and TR do not have a significant impact on growth, due to reason that capital markets in SEE region do not have developed primary markets, which could significantly spur the growth.
During the observed period, in years and , there was a significant shock for the dependent variable, due to a big economic crisis Picture 3. Since this negative impact was not caused by any included independent variable, we included a dummy variable DummyCR for this crisis shock, and we expect negative sign, therefore. Figure 3 : GDP per capita trends for sample countries with emphasis on the crisis shock in and Other variables behave similarly and show significant variations, except for OPEN and GOV, which have relatively low standard deviations.
All three independent variables vary significantly between countries, which indicate that capital markets in transition region were not developed at the same pace. Table 2. Results are satisfactory regarding existence of only one high correlation, namely between TR and STR variables it was expected since the nominator for both variables is same — securities trade turnover. However, this is not an issue since these two independent variables never enter regression jointly.
Being that research is based on data with longitudinal nature panel analysis , we first start with fixed effects FE model. Both regressions give similar results regarding the significant impact of market capitalisation indicator MCR variable on growth. However, government spending and GDPpc have a negative sign. After running regressions for other two coefficients STR and TR , we concluded that whole model is unstable, due to changes in signs and significance levels for some variables, after changing the structure and data within the model.
Panel data are prone to problems of error behaviour heteroscedasticity and autocorrelation. The potential problem of heteroscedasticity is confirmed by modified Wald test Appendix, Table 2 , as well as the problem of autocorrelation, that was confirmed by Lagram-Multiplier Wooldridge test Appendix, Table 3. Therefore, results from FE and RE regression are no more valid. In the end, in finance-growth research, it is important to check for endogeneity and reverse causality, regarding checking if the dependent variable growth reversely influences independent variables capital market development.
In case that this relation exists, it could diminish the importance of results of previous regressions. Table 4. In the second regression, STR stock turnover in GDP ratio came up with positive but insignificant impact on growth, while all other variables remained with the same sign and significance levels like in the first regression.
In the end, the last tested coefficient of stock turnover in market capitalization TR has shown to be positive but insignificant concerning its impact on economic growth. All other variables remained unchanged, except GOV government spending , whose coefficient changed the sign, but remained insignificant. Endogeneity and reverse causality Granger test most often tests endogeneity and causality.
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The results of the test Table 5. Now, we can interpret previous results with much more accuracy level. The main research goal was to test the significance of the positive impact of capital market activities on economic growth in SEE region. Due to data limitations, we have used variables that explain secondary capital markets, concerning its development, size and liquidity.
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The data for primary market activities are not available. Therefore, it is hard to expect that these variables give a right picture of capital market development, and it is hard to expect that capital market can spur growth through secondary market activities, knowing that primary market activities were at a very low level in SEE region. While two indicators representing capital market liquidity STR and TR showed the positive and insignificant impact on economic growth, regression on the other side, confirmed the positive and significant impact of market capitalization ratio representing market size on economic growth.
The main question that should be answered is the possibility of capital market impact through the secondary market since we know that primary issues and direct cash injections into real sector were rare in this region. One of the explanations could be an indirect effect of increased foreign portfolio investments inflows to transition countries during the transition period due to relatively low prices of shares after privatization , that increased money supply and increased general spending and demand, what, in turn, increased economic activities in general.
Regardless of possible direct and indirect effects, this study contributes to debates of previous research studies and policy creation, in terms of finding a positive impact of the capital market on economic growth. The fact that other two coefficients STR and TR did not show significant impact on growth makes this relation weaker, which is in accord with other studies that find a weaker impact of the capital market on economic growth in less developed countries and stronger impact in more developed countries.
The second dummy variable time dummy — DummyCR , which was used to absorb crisis effect, has shown the existence of structural shock, right after crisis break up. The choice of control variables was satisfactory. For most of them, we have got expected results with the high level of significance.
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Negative and significant effect of FDI on growth was the only unexpected result in the study. However, some previous studies have found similar effects. Since these results go outside economic theory the only cause in this finding, we can search in data quality. Limitation factors were a short period for which data are available since transition time in SEE region does not have a long history , as well as extreme external shocks due to the financial and economic crisis.
There is no direct dependence between economic growth and the stock market
Therefore, obtained results should be treated with caution. Besides that, we cannot be sure that control variable GDPpc represents labour effect very well. Labor effect, according to economic theory, is the key growth factor.
Finally, it would be hard to make a good further assessment of capital market-growth relationship in SEE region without making in-depth and qualitative analysis, which should discover main factors that limit primary market activities. Primary market activities are crucial for economic growth, and transition capital markets were not created naturally through primary issues as they did in developed economies.
They came up from the process of privatization, where shares of state companies were just transferred from state to private ownership. Random effects MCR. Regression 1 MCR. Regression 2 STR. It is recommended that substantial approach and workable policy formulation and implementation in the stock…. Globalization of capital and especially foreign direct investment FDI and trade has increased dramatically over…. This study focuses on the impact of economic indicators of Banking Sector Development Model on…. October 12, October 7, October 3, September 5, August 27, March 31, October 17, August 1, Harvard Njemcevic, F.
Journal of International Business Research and Marketing, 2 6 , pp. APA Njemcevic, F. Journal of International Business Research and Marketing, 2 6 , Vancouver Njemcevic F. Journal of International Business Research and Marketing.
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Cite Factor. Jour informatics. Crossref : DOI prefix: This study aims at examining the causality between economic growth and the performance of stock markets in two countries, Nigeria and United Arab Emirates UAE , for the period of The variables that will represent economic growth will be the gross domestic product GDP and foreign direct investment FDI.
4.1.2 Research hypothesis:
The variables utilized for the stock market will be the total traded value of shares per year, the market capitalization value and the turnover ratio. Results show there is a causal relation between economic growth and the stock market in Nigeria and UAE. The findings imply that stock market development stimulates economic growth. Thus, it can be concluded that in order to promote economic growth, these countries should work on supporting and developing the stock market.
Goldsmith Raymond Financial Structure and Development. New Haven, Yale University Press, p. Measurement of Economic Performance conference paper, Harvard University, p. The Quarterly Journal of Economics, 2 The Quarterly Journal of Economics, 30 Journal of Banking and Finance, 41 4 National Bureau of Economic Research, World Bank Economic Review, 10 2 Atlantic Economic Journal, 19 3 Bencivenga V, Smith B financial intermediation and endogenous growth. The Review of Economic Studies, 58 2