Capital Market Development and Economic Growth: Evidence from the Mint Countries

Abstract

Mexico, Indonesia, Nigeria and Turkey are 4 countries referred to as the ‘MINT’, and have been predicted to be gigantic economies by 2050. Leading Authors and researchers have argued in various studies that financial development is an engine to economic growth, and it is expected that this will drive the realisation of the predictive outcome of these countries. The study thus focuses on how capital market development as a subset of financial development has directly translated to economic growth of the MINT for a 13-year period of 2000—2012, through the composition of a balanced panel dataset comprising capital market activity variables of market capitalisation ratio to gross domestic product (GDP), number of listed securities and value of transactions as ratios of GDP and gross fixed capital formation respectively; with key economic growth indicators of change in GDP, gross domestic savings relative to GDP and gross fixed capital formation relative to GDP. The results reveal that number of listed securities is the most impacting capital market development measure on economic growth of the MINT as a group. This indicator was seen to be negative and significantly related to GDP, but positive and significantly related to gross domestic savings and gross fixed capital formation ratios to GDP. Statistical evidence further shows that Indonesia is mostly affected positively by capital market development, especially since it both increases gross domestic savings and gross fixed capital formation ratios. It is recommended that the study’s timeframe should be elongated in other to conduct long run econometric analysis that can be more valid and reliable.

Keywords: Capital market development, economic growth, market capitalisation, value of transactions and gross domestic product (GDP)