Links between stock market development and key economic growth variables : the case of selected African countries

Adjasi, Charles Komla Delali (Stellenbosch : Stellenbosch University, 2007-03)

Dissertation (PhD)--University of Stellenbosch, 2007.

Thesis

ENGLISH ABSTRACT: This thesis is a collection of eight essays on links between stock market development and economic growth in selected African countries. In the first essay an overall index of stock market development shows that South Africa, Mauritius, Zimbabwe, Morocco and the BRVM in Cote d’Ivoire have the most developed stock markets in terms of market size, liquidity and transactions cost indicators. However, Nigeria and Egypt also emerge when institutional development is considered. Ghana, Malawi and Namibia have the least developed stock markets. Results from the second essay on stock markets and growth show a positive relationship between stock market development and economic growth. This positive influence is significant for countries classified as upper-middleincome economies. On the basis of market capitalization groupings, stock market developments play a significant role in growth only for moderately capitalized markets. Form the third essay exchange rate depreciation in the long-run leads to increases in stock market returns in Tunisia. Exchange rate movement leads to stock market returns in Egypt, while stock market returns lead to exchange rate movement in Kenya and Mauritius. Shocks induced by either stock market returns or exchange rate changes are more protracted in Ghana, Kenya, Mauritius and Nigeria than in South Africa and Egypt. Cointegration analysis in the fourth essay reveals a negative relationship between inflation and stock market prices for three out of seven countries: Egypt, Mauritius and South Africa. Short-run models for these countries show a negative response of stock returns to instantaneous change in inflation. In Ghana, Kenya, Nigeria and Tunisia, where cointegration is absent, there is unidirectional causality from inflation to stock returns for Ghana, bidirectional causality between inflation and stock returns for Kenya, and no significant results for Nigeria and Tunisia. Results from the fifth essay show that investment in the selected countries grows significantly with an increase in stock market returns. Even without the inclusion of South Africa in the panel, stock market returns in the other relatively less developed African economies impact positively on investment growth. Cointegration tests from the sixth essay indicate a long-run relationship between interest rate and stock prices for Kenya and South Africa. In the short-run there is unidirectional causality from stock returns to interest rate in Kenya and bidirectional causality in South Africa. Responses to shocks have long-lasting effects in Egypt, Ghana, Nigeria and Tunisia and are short-lived in Mauritius. The seventh essay shows that countries with more developed stock markets (Cote d’Ivoire, South Africa, Mauritius, Tunisia and Morocco), have the most developed financial intermediation system. There is evidence from correlation analysis of complementarity between stock market development and bank developments in the selected countries. Finally from the eighth essay two long-run stable cointegration relations are found, one hinging on a larger market (South Africa) and the other on a smaller market (Ghana). The short-run error correction framework shows significant feedback and causal effects both ways from smaller to larger markets.

AFRIKAANSE OPSOMMING: Hierdie tesis bestaan uit 'n versameling van agt essays oor verwantskappe tussen aandelemarkontwikkling en ekonomiese groei in geselekteerde Afrika-lande. In die eerste essay toon 'n algehele indeks van aandelemarkontwikkeling aan dat Suid-Afrika, Mauritius, Zimbabwe, Marokko en die BRVM in die Ivoorkus die mees ontwikkelde aandelemarkte het wat grootte, likiditeit en transaksiekoste-aanwysers betref. Nigerië en Egipte kom egter ook te voorskyn wanneer institusionele ontwikkeling in ag geneem word. Ghana, Malawi en Namibië se aandelemarkte is die minste ontwikkel. Die resultate van die tweede essay oor aandelemarkte en groei toon 'n positiewe verwantskap tussen aandelemarkontwikkeling en ekonomiese groei. Hierdie positiewe invloed is beduidend vir lande wat as hoër-middelinkomste ekonomieë geklassifiseer word. Aandelemarkontwikkelings speel op grond van markkapitalisasiegroeperinge net in matig gekapitaliseerde markte 'n beduidende rol in groei. In die derde essay word aangetoon dat wisselkoersdepresiasie op lang termyn tot 'n toename in aandelemarkopbrengste in Tunisië gelei het. Wisselkoersbeweging lei tot aandelemarkopbrengste in Egipte terwyl aandelemarkopbrengste tot wisselkoersbeweging in Kenia en Mauritius lei. Skokke wat deur aandelemarkopbrengste of wisselkoersveranderings veroorsaak word, is meer langdurig in Ghana, Kenia, Mauritius en Nigerië as in Suid-Afrika en Egipte. In die vierde essay bring koïntegrasie 'n negatiewe verwantskap tussen inflasie en aandelemarkpryse aan die lig vir drie van die sewe lande: Egipte, Mauritius en Suid-Afrika. Korttermynmodelle vir hierdie lande dui op 'n negatiewe respons van aandelemarkte op 'n oombliklike verandering in inflasie. In Ghana, Kenia, Nigerië en Tunisië, waar koïntegrasie afwesig is, is daar 'n eenrigting oorsaaklikheid van inflasie na aandele-opbrengste vir Ghana, 'n tweerigting oorsaaklikheid tussen inflasie en aandele-opbrengste vir Kenia, en geen beduidende resultate vir Nigerië en Tunisië nie. Die resultate in die vyfde essay toon aan dat belegging in die geselekteerde lande beduidend groei met 'n toename in aandelemarkopbrengste. Selfs sonder om Suid-Afrika by die paneel in te sluit, het aandelemarkopbrengste in ander betreklik minder ontwikkelde Afrika-ekonomieë 'n positiewe uitwerking op ekonomiese groei gehad. Die koïntegrasietoetse van die sesde essay dui op 'n langtermynverwantskap tussen rentekoerse en aandelepryse in Kenia en Suid-Afrika. Daar is op kort termyn 'n eenrigting oorsaaklikheid van aandele-opbrengste na rentekoerse in Kenia, en tweerigting oorsaaklikheid in Suid-Afrika. Response op skokke het 'n langdurige uitwerking in Egipte, Ghana, Nigerië en Tunisië, maar is van korte duur in Mauritius. Die sewende essay toon aan dat lande met meer ontwikkelde aandelemarkte (Ivoorkus, Suid-Afrika, Mauritius, Tunisië en Marokko) die mees ontwikkelde finansiële bemiddelingstelsel het. Korrelasieontleding in die geselekteerde lande toon bewyse van van komplementariteit tussen aandelemarkontwikkeling en bankontwikkeling. Laastens is daar in die agste essay twee langtermyn stabiele koïntegrasieverhoudings gevind – een wat van 'n groter mark (Suid-Afrika) afhang en een wat van 'n kleiner mark (Ghana) afhang. Die korttermyn-foutkorreksieraamwerk toon beduidende terugvoer en kousale uitwerkings in albei rigtings van kleiner tot groter markte.

pdv2012

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