A Stock market development and economic growth nexus in Uganda and Turkey, an ardl modelling approach

Abstract

This study comparatively and empirically investigated the short-run and long-run relationship between stock market development and economic growth using time-series data from 2001 to 2020. The study was premised on three objectives, namely; to examine the effect of stock market size on economic growth in Uganda and Turkey, to identify the impact of stock market depth on economic growth in Uganda and Turkey, and to establish the effect of stock market efficiency on economic growth in Uganda and Turkey. The study used GDP pa capita to measure economic growth, stock market capitalization to measure stock market size, total values of shares traded to measure stock market depth and stock market turnover to measure stock market efficiency. Holding inflation and interest rates for both countries constant, the study used the ARDL model to explore the short and long-run effects of stock market development proxies on economic growth in Uganda and Turkey using time series data spanning over 20 years. The study results from the ARDL bounds test showed evidence of a long-run effect of stock market size, stock market depth and stock market efficiency on economic growth for both countries. Further, the Error Correction Model results showed no evidence of a short-run effect of stock market size and stock market depth on economic growth in Uganda. The Error correction model, however, revealed that stock market efficiency affects economic growth in Uganda in the short run. The Error correction model also showed no evidence of a short-run effect of stock market size and stock market efficiency on economic growth in Turkey. The study concluded that stock market development plays a critical role in enhancing the long-run economic growth of both countries. Consequently, the study recommended opening more doors for more companies to list on the stock exchange, improvement of finance infrastructure and acceleration in financial integration efforts.