Selected paper

Magweva, Rabson Mashamba, Tafirei
Stock Market Development and Economic Growth: An Empirical Analysis of Zimbabwe (1989-2014)
Year: 2016
Volume: 7
Issue: 3
Pages: 20-36
JEL: C01, C22, C13, G23
DOI: 10.5817/FAI2016-3-2


cointegration, economic growth, stock market, unit root tests, vector error correction model

The relationship between stock market development and economic growth varies across nations and regions. This relationship is of significance to regulatory authorities, investors and portfolio managers in their operations aimed at enhancing the welfare of the citizens and clients at large. The purpose of this study is to examine the relationship between these two variables in Zimbabwe for the period 1989 to 2014. The paper employed the Vector Error Correction Model approach after establishing the order of integration (unit root tests) and cointegration between variables. All the variables were found to be stationary at 1% level after first differencing using the Phillips-Peron tests. The long run relationship was negative, whereas the short run coefficients were insignificant. Though contrary to financial theory, the results, to a large extent, testify to what happened during the period. Based on these findings, the Zimbabwe Stock Exchange and Securities and Exchanges Commission are urged to come up with alternative products to lure new listings from the small to medium enterprises. It is also recommended that all the stakeholders focus beyond the Zimbabwe Stock Exchange to promote economic growth as the firms seem to raise funds from other sources.


Bagehot, W. (1873). Lombard Street: A Description of the Money Market. London: Henry S King and Company. Beck, T and Levine, R. (2003). Stock Markets, Banks and Growth: Correlation or Causality. Policy Research Working Paper 2670. World Bank: Washington D.C. Bernanke, B. (1986). Alternative Explanations of the Money-Income Correlation. In: Carnegie-Rochester Conference Series on Public Policy (incorporated into Journal of Monetary Economics), 25, pp. 49-99. Bhide, A. (1993). The Hidden Costs of Stock Market Liquidity. Journal of Financial Economics, 34(1), pp. 31-51. Binswanger, R. (2000). The Relationship between Stock Market Returns and Rates of Inflation. Journal of Finance, 34(3), pp. 743-749. Boulila, G., and Trabelisi, M. (2002). Financial Development and Long-Run Growth: Granger Causality in Bivariate VAR Structure, Evidence from Tunisia: 1962-1997. FSEGT Working paper. Calderon, C., and Liu, L. (2003). The Direction of Causality between Financial Development and Economic Growth. Journal of Development Economics, 72(1), pp. 321-334. Campbell, J. Y. (1987). Stock Returns and the Term Structure. Journal of Financial Economics, 18(2), pp. 373-399. Chiwunze, G. (2014). Foreign Investors and the Performance of the Zimbabwe Stock Exchange in the Multicurrency Period. Available at: Comincioli, B. (1996). The Stock Market as a Leading Indicator: An application of Granger Causality. The Park Place Economist, 4, pp. 31-40. Corporale, G. M., Howells, P. G. A. and Soliman, A. M. (2004). Stock Market Development and Economic Development: A Causal Linkage. Journal of Economic Development, 29(1), pp. 33-50. Demetriades, P. and Hussein, K. (1996). Does Financial Development Cause Economic Growth? Time Series Evidence from 16 Countries. Journal of Development Economics, 51(2), pp 387-411. Fry, M. (1995). Money, Interest, and Banking in Economic Development, 2nd ed. London: John Hopkins University Press. Goldsmith, R. W. (1969). Financial Structure and Development. New Haven, CT: Yale University Press. Gono, G. (2008). Press statement on the rampant fraudulent activities on the stock exchange, the insurance and pension fund industries and the banking sector. Reserve Bank of Zimbabwe, November 2008. Available at: Gono, G. (2012). Monetary Policy Statement. Reserve Bank of Zimbabwe, January 2012. Available at: IMARA (2012). Zimbabwe Stock Exchange Overview – May 2012. Available at: Inanga, I. L. and Emenuga, C. (1997). Institutional, Traditional and Asset Pricing Characteristics of the Nigerian Stock Exchange. African Economic Research Consortium. Research paper 60. Islam, R., Habib, W. and Khan, H. (2004). A Time Series Analysis of Finance and Growth in Bangladesh. The Bangladesh Development Studies, 30(1/2), pp. 111-128. Jecheche, P. (2011). The Effect of the Stock Exchange on Economic Growth: A Case of the Zimbabwe Stock Exchange. Research in Business and Economics Journal, pp. 1-17. Available at: Johansen, S., and Juselius, K. (1992). Testing Structural Hypothesis in a Multivariate Cointegration Analysis of the PPP and UIP for UK. Journal of Econometrics, 53(1-3), pp. 211-244. King, R.G. and Levine, R. (1993). Finance and Growth: Schumpeter Might be Right. Quarterly Journal of Economics, 108(3), pp. 717-737. Levine, R. (1997). Financial Development and Economic Growth: Views and Agenda. Journal of Economic Literature, 35(2), pp. 688-776. Levine, R. (1999). Law, Finance and Economic Growth. Journal of Financial Intermediation, 8(1), pp. 36-67. Levine, R. (2004). Finance and Growth: Theory and Evidence. Working Paper 10766, National Bureau of Economic Research. Available from: Levine, R. and Zervos, S. (1998). Stock Markets, Banks, and Economic Growth. American Economic Review, 3(88), pp. 537-558. Levine, R., (1997). Financial Development and Economic Growth: Views and Agenda. Journal of Economic Literature, 35(2), pp. 688-726. Levine, R., Loayza, N., Beck, T. (2000). Financial Intermediation and Growth Causality and Causes. Journal of Monetary Economics, 46(1), pp. 31-77. Lyton-Edwards (2011). Stockbrokers. Available at: Maduka, C. and Onwuka, K. O. (2013). Financial Market Structure and Economic Growth: Evidence from Nigeria Data. Asian Economic and Financial Review, 3(1), pp. 75-98. Mckinnon, R. I. (1973). Money and capital in economic development. Washington, D.C.: Brooking Institution. Ndlovu G. (2013). Financial Sector Development and Economic Growth: Evidence from Zimbabwe. International Journal of Economics and Financial Issues, 3(2), pp. 435-446. Nowbutsing, B. M. (1999). Stock Market Development and Economic Growth: The Case Of Mauritius. International Business and Economics Research Journal, 8(2), pp. 77-88. Nyong, M. O. (1997). Capital Market Development and Long-Run Economic Growth: Theory, Evidence and Analysis. First Bank Review, pp. 13-38. Patrick, H. T. (1966). Financial Development and Economic Growth in Underdeveloped Countries. Economic Development and Cultural Change, 14(1), pp. 174-189. Perron, P. (1989). The Great Crash, the Oil Price and the Unit Root Hypothesis. Econometrica, 57(6), pp. 1361-1401. Perron, P. (1990). Testing for Unit Root in a Time Series with Changing Mean. Journal of Business and Economic Statistics, 8(2), pp. 153-162. Robinson, J. (1952). The Rate of Interest and Other Essays. London: Macmillan. Rousseau, P. L., and Wachtel, P. (2000). Equity Markets and Growth: Cross Country Evidences on Timing and Outcomes. Journal of Banking and Finance, 24, pp. 1933-1957. Rubin Leah H., Witkiewitz, K., Andre, J. St. and Reilly, S. (2007). Methods for Handling Missing Data in the Behavioral Neurosciences: Don’t Throw the Baby Rat out with the Bath Water. The Journal of Undergraduate Neuroscience Education, 5(2), pp. A71-A77. Schumpeter, J. A. (1912). Theorie der Wirtschaftlichen Entwicklung (The Theory of Economic Development). Translated by Redvers Opie Cambridge, MA: Havard University Press. Singh, A. (1997). Financial Liberalization, Stock Markets and Economic Development. The Economic Journal, 107, pp. 771-782. Tuncer, C. and Alovsat, M. (2001). Stock Markets and Economic Growth: A Causality Test. Institute of Social Science, Istanbul Technical University. Van Nieuwerburgh, S., Buelens, F. and Cuyvers, L. (2005). Stock Market Development and Economic Growth in Belgium. New York: Stern School of Business. Zivengwa, T., Mashika, J., Fanwell, K. B., and Makova, T. (2011). Stock Market Development and Economic Growth in Zimbabwe. International Journal of Economics and Finance, 3(5), pp. 140-150.

Call for papers

Call for papers is permanently open for articles across all the research areas.

tel.: +420 549 494 683 | e-mail:
© Copyright 2010–13 IFT