The relationship between stock market development and economic growtb: A Kenyan case study.

Abstract

The study employs ARDL Bounds test of cointegration technique and VECM based Granger Causality to determine the short-run and long-run relationship between stock market development and economic growth for the period 2005-2019. Evidence from the model where real GDP growth is the dependent variable reveals that both market capitalization ratio and total value traded ratio are insignificant in expiaining growth. The evidence from modei 2 where reai GDP and oniy the short run dynamics are considered reveal that only market capitalization ratio is significant in explaining economic growth. Results from the Granger causality test show a unidirectional relationship from economic growth to totai value traded ratio (liquidity of the stock market).