| dc.description.abstract | The Nairobi Stock Exchange has performed dismally in relation to other developing
countries and newly industrialized countries (Asian tigers) that at one period, they were
at the same stage of economic development with Kenya. These economies grew at a faster
rate and they have more than 15 times the number of listed companies on their stock
markets. This paper investigated the link between stock market development and
economic growth in Kenya. The specific objectives of the study were: First, to find out the
long-run relationship between measures of stock market development and economic
growth in Kenya using a Vector Autoregressive (VAR) model. Second, to find out whether
there is causality between stock market development and economic growth in Kenya and
drawing policy recommendations based on investigative empirical results.
Investigation of the co-integration results shows that there exists long-run infer-linkage
between stock market development and economic growth. Thus, the co-integrating
equation shows that market capitalization ratio positively influence GDP growth rate.
This is consistent with findings by Levine (1996). These results are also supported by the
co-integration plot which indicated long-run relationship between the indicators of stock .' market development and economic growth. The results indicate that stock market
development does indeed influence economic growth.
These research findings of the study are; the size of the stock as indicated by market
capitalization ratio positively affects economic growth significantly, while and liquidity of the stock market as captured by total value of shares traded and turnover ratio and
volatility significantly affect economic growth negatively. The effects of these measures of the stock market development on growth may be direct or indirect. The speed of
adjustment coefficient is also significantly different from zero and shows that there is a
long-run relationship between indicators of stock market development and economic
growth.
The study recommends NSE needs to be developed further to enhance domestic resource
mobilization. Various policies and programs that affect stock market development such
as regulation of institutional investors and privatization need to be addressed. The policy
makers should consider reducing impediments to stock market development by easing
restrictions on international capital flows. | en |
