Equity Markets Development and Economic Growth in Emerging Markets

Abstract

This study explores the relations between the development level of capital markets sub-components and economic growth over the past 50 years in Emerging Markets. There is a long-term cointegrating relationship between capital markets development and economic growth and a unidirectional causality running from capital markets development to economic growth. Although the focus of my paper is on capital markets but using a linear regression model, I find other factors are negatively and positively associated with economic growth. Capital markets play a critical role in economic development by pooling together domestic savings and mobilizing foreign capital for productive long-term investment. Emerging markets are projected to grow strongly over the next couple of years, and sophisticated capital markets will only enhance future growth and ensure the competitiveness of those economies globally.