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.