Dissertation Proposal

Does April 16, 2011

1. Research Title

Does stock market development generate economic growth? Bangladesh perspective

2. Statement of the Problem

As an important part financial market Stock Market has broader impact on the economic growth of a developing country.

Justification of the research

There is debate whether financial sector leads economic growth or whether the growth is a consequence of increased economic activity. Financial institutions like stock market, banks and other financial institutions and intermediaries are constantly shaping the economic activities. Frequent volatility in financial sectors especially in stock market in Bangladesh often raise the question of its real impact on economy.

Literature Review
Capasso (2006) determines the rationale behind the development of stock markets along the path of growth and the nature of the interrelationship between real and financial variables. Filer et al (1999) using data of 64 countries finds a strong relationship between stock market operation and future economic growth for the low and lower middle income countries. Chee Keong Choong et al (2003) pointed out that stock market development has a considerable positive impact on economic growth in Malaysia and he also argued that stock market development has a causal relationship with economic growth. Dr. Abu Mollik et al reveal that the Bangladeshs stock market is growing in terms of market capitalization to GDP although the growth over time is not stable.

Literature Review
Mohtadi Agarwal examines the relationship between stock market development and economic growth for 21 emerging markets over 21 years; from 1977-1997 using a dynamic panel method suggests that stock market development is positively associated with economic growth. Khan and Senhadji from their analysis identify strong positive and statistically significant relationship between financial depth and growth in the cross-sectional analysis. Shleifer and Summers (1988) and Morch, Shleifer and Vishny (1990) shows that stock market development hamper economic growth by easing counterproductive takeover. Devereux and Smith (1994) shows that internationally integrated stock market reduces savings rate and slow economic growth through risk sharing internationally.

Objectives of the Research

Broad Objective
To examine the impact of stock market in the economic growth of a developing country like Bangladesh.

Specific Objective
Examine the relationship pattern between stock market and economic growth components. Examine the significance of different growth components compare to stock market over the economic growth of Bangladesh.

Research Questions

What is the impact of stock market in the economic growth of a developing country like Bangladesh?
Does any uni-directional or bi-directional relationship exist between economic growth and stock market development in Bangladesh? What is the significance of stock market size (liquidity level of stock market, market capitalization of listed companies) on economic growth (GDP) of Bangladesh

Methodology
Data Economic and financial information or data related to GDP, size and liquidity level of stock market, market capitalization of listed companies are to be used to explain the significance. Source Bangladesh Bank, Securities and Exchange Commission, Bangladesh bureau of Statistics and publications / website information from World Bank, IFC, IMF, Statistical Yearbook, BIDS Tools Statistical method i.e. vector error correction model (VECM) to be used to examine this significance of stock market on economic growth . Granger causality test would be undertaken to examine whether a unidirectional or bi-directional relationship

References

Ahmed, S. N. & Ansari, .M. I. 1998. Financial Sector Development and Economic Growth: The South-Asian Experience, Journal of Asian Economics. 9: 503-17. Chee Keong, C., Zulkornian, Y., Siong, H. L., & Venus, K.S. (2003). Financial Development and Economic Growth in Malaysia: The Stock Market Perspective. Demirg-Kunt, A. and R. Levine (1996b), Stock markets, corporate finance and economic growth: an overview, The World Bank Economic Review, 10, 223-239. Greenwood, J. and Jovanovic, B. (1990). Financial development, growth, and the distribution of income, Journal of Political Economy, 98: 1076-107. Gujarati, Damodar (1995). Basic Econometrics, New York: McGraw -Hill. Levine, R. (1997), Financial Development and Economic Growth: Views and Agenda, Journal of Economic Literature, XXXV, 688-726. Schumpeter, Joseph (1912). Theorie der Wirtschaftlichen, Entwicklung [The Theory of Economic Development], Leipzig: Dunker and Humblot, 1912; translated by redevers Opie (Cambridge, Massachusetts: Harvard University Press, 1934). Subrahmanyam, A., & Titman, S. (1999). The Going Public Decision and the Development of Financial Markets. Journal of Finance 54, pp. 1045-1082.

Proposed Supervisor

Sk Jafar Emran
Lecturer Development Studies University of Dhaka