An Analysis of the Effects of Stock Market Development on Economic Growth in Kenya

Abstract

This paper presents an analysis of the stock market development effects on economic growth in Kenya, using the gross domestic product and the two key measures of stock market – capitalization and trade volume. Empirical results indicate that variables satisfied apriori expectations, are statistically significant, and positively correlated with feed-back effects. Capitalization, trade volume and economic growth are highly positively correlated in Kenya, with capitalization and trade volume jointly explaining 91% of the variations in the economic growth, over the period under study. Further, the study found that a 1% increase in both trade volume and capitalization causes 0.025% and 0.115% increase in gross domestic product respectively. Thus, empirical evidence shows that stock market development (measured by trade volume and/or capitalization) impacts positively on the economic growth in Kenya.

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