Stock Market Development and Economic Growth in Zimbabwe

Abstract

The main purpose of this study was to explore the causal link between stock market development and economic growth in Zimbabwe using annual time series data for the period 1980 to 2008. The study evaluated the nature of the relationship between stock market development and economic growth in Zimbabwe. The stock market development was measured using two variables namely stock market size as measured by stock market capitalization as a ratio of GDP and stock market turnover as measured by the value of stocks traded as a ratio of stock market capitalisation. The study utilised advanced econometric techniques of Unit Root Tests, Vector Autoregressive (VAR) and Granger Causality Tests to explore the relationships. The empirical results showed a uni-directional causal link that runs from stock market development to economic growth and there is evidence of an indirect transmission mechanism through the effect of stock market development on investment.

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