The determinants of stock market development in the Middle‐Eastern and North African region

Abstract

PurposeThe purpose of this study is to investigate the role of stock markets in economic growth and to shed some light on the macroeconomic determinants which must have an important influence on stock markets development.Design/methodology/approachThe empirical study is conducted using an unbalanced panel data from 12 Middle Eastern and North African (MENA) region countries. Econometric issues are based on estimation of some fixed and random effects specifications.FindingsIt is found that saving rate, financial intermediary, stock market liquidity and the stabilization variable are the important determinants of stock market development. In addition, it is found that financial intermediaries and stock markets are complements rather than substitutes in the growth process.Practical implicationsThis paper has some policy implications to MENA region countries. In order to promote stock market development in the region, it is important to encourage savings by appropriate incentives, to improve stock market liquidity, to develop financial intermediaries and to control inflation.Originality/valueSince it is unclear whether emerging markets in the MENA region respond, similarly, to economic and political shocks like other emerging markets and/or developed markets. This paper fills this gap by making an in‐depth analysis of 12 MENA capital markets in order to assess how they can improve their capital markets, and hence, benefit the global investor.

The Macroeconomic Determinants of Stock Market Development in Selected European Countries: Dynamic Panel Data Analysis

“…They showed that liquid stock markets had a significant and subsequent impact on economic growth. Naceur et al (2007) found that saving, financial institutions, stock market liquidity and inflation are important determinants of stock market development. The empirical study covered the time period 1979-1999.…”

Examining the Effect of Selective Macroeconomic Variables on The Stock Exchange’s Depth and Breadth (Case Study: Tehran Stock Exchange)

“…Whenever economic conditions of a country allow a high rate of saving i.e., people save part of their income in addition to paying daily expenses, we can say investment in that country will be strengthened. On one hand, it is possible to guess that investment is one of the important factors determining stock exchange capital since investment rate depends on saving rate (Naceur et al, 2007). On the other hand, stock exchange could not be developed without the existence of an efficient system of financial intermediaries including underwriters, dealers, etc.…”

“…External non-economic factors affecting the stock exchange development are classified as political, legal, social, cultural, and technological factors (Osulian, 2006;Black, 2001;Boubakri and Olfa, 2007;Torre et al, 2006). These internal and external studies conclude that national income, saving rate, investment rate, financial intermediary development, liquidity of stock exchange, liberalization of stock exchange, privatization, macroeconomic instability, tax rate, interest rate, inflation rate and currency rate are among the most important, effective macroeconomic variables on stock exchange development (Osulian, 2006;Black, 2001;Boubakri and Olfa, 2007;Naceur et al, 2007;Torre et al, 2006). In this research, four variables including national income, investment rate, financial intermediary development, and macroeconomic instability have been selected according to Garcia and Liu (1999).…”

“…It is predicted that higher income has a positive effect on stock exchange development. Higher income means better education, better commercial environment and wealthier citizens (Naceur et al, 2007). Incomes of individuals are divided into two parts of consumption and saving.…”

“…In contrast, Garcia (1986) understood that the central bank could cause a reverse correlation between banking system growth and stock exchange development (Garcia, 1986). The last macroeconomic variable of research is macroeconomic instability: the more the economic instability (for example, the permanent change of inflation rate) the less the motivation of corporations and investors to invest in the stock exchange, and consequently, the fewer opportunities for stock exchange development (Khalili and Ramezan Pour, 2002;Fischer, 1996;Naceur et al, 2007;World Bank, 1996;World Bank Staff, 1993). …”