The effects of stock market development on growth and private investment in lower-income countries

Recent literature argues that stock market liberalisation has positive longand short-run effects on macroeconomic growth and private investment, respectively. However, given a sample of up to 64 countries from 1981 through 1998, positive results for long-run growth are largely dependent on the inclusion of higher-income countries in regression samples, which limits the relevance for lower-income nations. Indeed, some evidence in this study indicates that stock market development has a more positive impact on growth for greater levels of per capita GDP, lower levels of country credit risk, and higher levels of legal development. Similarly, using a sample of 26 countries from 1981 through 1998, lagged equity price appreciation seems to boost private investment growth in the short-run, but only in rich countries. All in all, these results imply subdued enthusiasm regarding emerging equity market development. 2002 Elsevier Science B.V. All rights reserved. JEL classifications: G1; G2; O16; F36