Effect of stock market development on economic growth: case study Egypt

Abstract EN

The growing importance of financial markets around the world renews the interest to investigate whether development of the stock market specifically can promote long-run economic growth or not.

the objective of this study is to investigate the empirical relationship between stock market development and economic growth in Egypt during the critical economic period of 2009 to 2019 which has experienced many economic and political events.

following the literature, the study uses secondary data collected from the world bank, international financial statistics (IFS), and the Egyptian ministry of planning (MOP) and central bank of Egypt (CBE) for stock market indicators, economic growth indicators, banking sector variables and other relevant macroeconomic variables.

the quarterly data used to estimate the relationship through hybrid method (both quantitative and qualitative) approach.

the qualitative part uses a graphical illustration to depict the evolution of various stock market variables while the quantitative part focuses on investigating the empirical effect of stock market development on economic growth using ARDL model.

the main findings of the study are as follows: 1) there is no relationship over the short run between stock market development and economic growth, 2) the effect of stock market development on economic growth is negative over the long run (holds only for the turnover ration), 3) the main triggers for economic growth in Egypt during this period are other factors like higher primary education enrolment, 4) there is no relation between the banking sector and the economic growth neither in the short run nor in the long run, 5) the results match with the literature of some developing countries, including Egypt.

the negative relationship may be due to the underdeveloped financial systems., and 6) the results of the test are stable, robust and correctly specified.