Feedback of macroeconomic indicators to shocks in second-tier stock market development and innovation within Kaleckian framework: Hong Kong case study

Despite the importance of second-tier stock markets in supporting SMEs (Small and Medium Enterprise) development and innovation, the dynamic impacts of second-tier stock markets development and innovation on macroeconomic indicators remain underexplored. This study aims to bridge the gap both theoretically and empirically. Accordingly, the theoretical model of Kaleckian-Post-Keynesian macroeconomics is extended and an empirical model is specified and estimated for the case of Hong Kong. A Structural Vector Error Correction (SVEC) estimation technique and impulse response function are adopted for empirical analysis. The results determine that Hong Kong’s macroeconomic indicators exhibit small but positive feedback to shocks in the second-tier market development and innovation in the short run. Specifically, various channels of growth including private investment, domestic savings, and productivity growth are found to be responsive to shocks in the second-tier market development indicators. Meanwhile, shocks to innovation indicators effectively induce responses of the following growth channels: private investment, domestic savings, productivity growth, and employment.