Enabling stock marketdevelopment in Africa:A review of themacroeconomic drivers
2021
Africa has underdeveloped stock markets that have failed to meet the continent’s capital
needs, such as rapid economic growth. This research analyzes the key drivers of
stock market development in Africa from a macroeconomic perspective. The study
examines several macroeconomic variables, including credit to the private sector, foreign
direct investment, external reserves, money supply, external trade, per capita GDP,
inflation, and lending rate to explain stock market development in Africa. The study
builds a panel data consisting of eight African countries from 1994 to 2018 and applies
the pooled mean group estimation technique. The analysis shows that in the long run,
credit to the private sector, external reserves, and inflation are the most important
factors that influence stock market development, while in the short run, income and
trade openness are significant in explaining stock market development in Africa. The
study recommends that policies to develop African stock markets should center on developing
the private sector through access to credit, increased per capita income, and
effective foreign reserve management to boost local and foreign investors’ confidence.
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