This paper investigates the causal relationship between stock market development and economic growth for Germany for the period using a Vector Error Correction Model VECM. The purpose of this paper was to examine the long-run relationship between these variables, applying the Johansen co-integration analysis based on the classical unit roots tests.

The results of Granger causality tests indicated that there is a unidirectional causality between stock market development and economic growth with direction from stock market development to economic growth.

Stock market; Economic growth; VAR model; Granger causality. Stock market development has been the subject of intensive theoretical and empirical studies [1, 2]. More recently, the emphasis has increasingly shifted to stock market indexes and the effect of stock markets on economic development.

Stock market contributes to the mobilization of domestic savings by enhancing the set of financial instruments available to savers to diversify their portfolios providing an important source of investment capital at relatively low cost. A well functioning and liquid stock market, that allows investors to diversify away unsystematic risk, will increase the marginal productivity of capital [3].

Another important aspect through which stock market development may influence economic growth is risk diversification.

Obstfeld [4] suggests that international risk sharing through internationally integrated stock markets improves the allocation of resources and accelerates the process of economic growth. Evolution of stock market has impact on the operation of banking institutions and hence, on economic promotion. This means that stock market is becoming more crucial, especially in a number of emerging markets and their role should not be ignored [5]. Levine and Zervos [2] argued that a well-established stock market not only can mobilize capital and diversify risks between market agents but also it is able to provide different types of financial services than banking sector to stimulate economic growth.

The necessity of stock market development is an imperative need in order to achieve full efficiency of capital allocation if government can liberalize the financial system. As far as physical accumulation is concerned, both stock markets and banks provide sources of external financing for firms.

Research report | Financial Markets | Economic Growth

For the purpose of resource allocation, they both create information to guide the allocation of resources. They differ only in the way the information is transmitted.

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Information in stock markets is contained in red river livestock market prices, while loan managers collect that in banks. Therefore, while banks finance only well-established, safe borrowers, stock markets can finance risky, productive and innovative investment projects [6].

Fama and Schwert [7, 8] claim that there are three explanations for the strong link between stock prices and real economic activity: Second, changes in discount rates may affect stock prices and real investment similarly, but the output from real investment does not appear for some time after it is made.

Third, changes in stock make a money mojo bag are changes in wealth, and this can affect the demand for consumption and fbs forex review goods [8]. The main objective of this paper was to investigate the causal relationship among economic growth, stock market development and bank lending.

Stock market development and bank lending favour economic growth. Section 2 describes the specification of the model, develops the Johansen co-integration analysis, analyses the vector error correction models and presents Granger causality tests, while section 3 presents the empirical results.

Dissertation stock markets economic growth levine - live forex trading signals free

Finally, section 5 provides the conclusions of this paper since only a short discussion summarizes in section. In this study, the methodology of vector autoregressive model VAR is applied to estimate the relationship among economic growth, stock market development and bank lending.

Stock Market Development and Long-Run Growth: Policy Research Working Papers

Suppose that a general vector model can be estimated separately, regarding each dissertation stock markets economic growth levine as a dependent one with other two independent variables respectively. According to the empirical studies of King and Levine; Vazakidis and Adamopoulos [9, 10, 11], the variable of economic growth GDP is measured by the rate of change of real GDP, while the general stock market index is used as a proxy for buy apple rootstock stock market development.

The general stock market index SM better represents the stock exchange market than other financial indices [12, 13, 14, 15, 16, 17, 18]. The sample used in this paper consists of annual observations for Germany and spans from to regarding as a base year.

All time-series data are expressed in their levels and are obtained from International Financial Statistics [19]. The linear model is selected as a better model for statistical estimations than a logarithmic one. The tested results of the logarithmic model have proved to be statistical inferior. For univariate time-series, analysis involving stochastic trends, Augmented Dickey-Fuller ADFPhillips-Perron PP and Kwiatkowski et al KPSS [25] unit root tests are calculated for individual series to provide evidence as to whether the variables are integrated.

This is followed by a multivariate co-integration analysis.

Augmented Dickey-Fuller unit root tests are calculated for individual series to provide evidence as to whether the variables are stationary and integrated of the same order. We will write a custom essay sample on Stock Market and Economic Growth.

Stock Market and Economic Growth Essay Custom Student Mr. Teacher ENG 2 January Stock Market and Economic Growth Abstract This paper investigates the causal relationship between stock market development and economic growth for Germany for the period using a Vector Error Correction Model VECM. Introduction Stock market development has been the subject of intensive theoretical and empirical studies [1, 2].

Finally, section 5 provides the conclusions of this paper since only a short discussion summarizes in section 4. Data and specification model 2. University of California Type of paper: Related Essays Stock market Investment Develop a stock market The Stock Market is a Example of Perfect Competition Causes of the Stock Market Crash of Economic Development of India Difference Between Economic Growth and Economic Development Stock Market Vs.

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