The nexus between financial markets and economic growth in frontier economies
Abstract
The stock market has potential to tum a country's fortunes. With proper organization
and robust structures, the market can channel a county's savings and investments to
deserving companies which would in tum, help develop the economy. Understanding
how the stock market influences economic growth is important in formulating
policies that would help make it more attractive to investors and more efficient in its
allocation of resources. This paper undertakes to establish the quantitative effect of
the stock market on economic growth and determine whether there is a long-term
relationship between the two. A linear ordinary least squares model is used to
achieve the first objective while the Johansen cointegrating test is used to achieve the
second. The paper then offers recommendations, based on the findings, and provides
possible areas of further research.