STOCK MARKET DEVELOPMENT, FOREIGN CAPITAL INFLOWS AND ECONOMIC GROWTH IN ZIMBABWE: A MULTIVARIATE CAUSALITY TEST

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Abstract

In this study we examine the dynamic nexus between stock market development and economic growth – using time-series data from Zimbabwe. The causal relationship between stock market development and economic growth has been a subject of extensive debate in recent years. In an attempt to address the omission-of-variable bias, which has not been addressed by many previous studies, we have incorporated savings as a third variable in the bivariate setting between stock market development and economic growth – thereby creating a multivariate simulation. The study uses the Johansen–Juselius (Johansen and Juselius, 1990) (maximum likelihood) and a dynamic specification model to examine this linkage. The empirical results reveal that there is a distinct causal flow from stock market development to economic growth – without any feedback in Zimbabwe. The results also show that there is a unidirectional causal flow from savings to economic growth, and from stock market development to savings.

Keywords: Africa, Zimbabwe, Stock Market Development, Economic Growth

How to cite this paper: Tsaurai, K., & Odhiambo, N. M. (2012).Stock market development, foreign capital inflows and economic growth in Zimbabwe: A multivariate causality test. Corporate Ownership & Control, 9(2-3), 313-322. https://doi.org/10.22495/cocv9i2c3art1