Relationship Between Capital Market Development and Economic Growth in East Africa Community
Abstract
Financial market development can be defined as the policies, factors, and the
institutions that lead to the efficient intermediation and effective financial markets. A
strong financial system offers risk diversification and effective capital allocation. The
greater the financial development, the higher would be the mobilization of savings
and its allocation to high return projects. Levine, (1993) emphasized to consider the
importance of financial sector in economic growth. Economic growth is the sustained
increase in welfare of an economy nation, region, city together with the ongoing
changes in that economy's industrial (Ray 1998). Economic growth is conventionally
measured as the percent rate of increase in Gross domestic product (GDP). Economic
growth will be dependent variable in the study, while financial market development
being independent variable. This study will tend to answer how financial market
indicators relate to economic growth in East African Countries.
The population of study focuses on the five official EAC member countries namely:
Kenya, Uganda, Tanzania, Rwanda and Burundi for an eight year period between the
years 2006 to 2014. The study establishes positive relationships between market
capitalization, money growth and economic growth. The fixed effect model reveals
that there is a positive significant effect of capital development on economic growth.
The effect of human capital, physical capital and foreign direct investment also has
positive effect on economic growth at all conventional levels. The objective of the
study was to establish the relationship between capital market developments on
economic growth. It was also established that macroeconomic factors that include
foreign direct investment, physical capital and labour development have positive and
significant effect on GDP for East Africa countries.
Publisher
University of Nairobi
Description
Thesis