Does stock market performance have a long effect on economic growth: Evidence from MENA

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Abstract

Financial market has a close relationship with economic growth because increasing economic growth, representing the real gross domestic product (GDP), will enhance the efficiency and develop the stock market. On the other hand, the good performance of the stock market will affect economic growth positively. This paper aims to investigate the impact of stock market performance on the economic growth of a group of MENA countries during the time period 2000–2019. This study uses unbalanced panel data, unit root test, co-integration test, and autoregressive distributed lag (ARDL) model for data analysis (Kao, 1999; Pesaran, Shin, & Smith, 2001). The findings report that the stock market index, banking sector development, the ratio of foreign direct investment (FDI) to the GDP, and the consumer price index, as a proxy of inflation, have a significant positive long-run effect on the economic growth, while the ratio of broad money supply (M2) to the GDP has a significant negative long-run effect on the economic growth. The policymakers and government can based on the results of the study in developing and adopting policies to improve and enhance the efficiency of the stock market and attracting new investors inside and outside the country, which results in increasing the economic growth.

Keywords: Financial Markets, Economic Growth, Panel Data, ARDL, MENA

Authors’ individual contribution: Conceptualization — W.A.S. and K.I.B.; Methodology — W.A.S. and K.I.B.; Software — W.A.S. and K.I.B.; Formal Analysis — W.A.S. and K.I.B.; Investigation — W.A.S. and K.I.B.; Resources — W.A.S. and K.I.B.; Writing — Original Draft — W.A.S. and K.I.B.; Writing — Review & Editing — W.A.S.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

Acknowledgements: The Authors thank the faculty members of the Department of Banking and Financial Sciences and the Department of Economics at the Hashemite University for their support.

JEL Classification: B26, C33, D53, E44, E52

Received: 28.02.2022
Accepted: 06.06.2022
Published online: 08.06.2022

How to cite this paper: Al Salamat, W., & Batayneh, K. I. (2022). Does stock market performance have a long effect on economic growth: Evidence from MENA [Special issue]. Journal of Governance & Regulation, 11(2), 368–373. https://doi.org/10.22495/jgrv11i2siart16