Capital market development and economic growth in selected emerging African economies

Abstract

Capital markets in many African economies remain relatively underdeveloped despite their growing importance in financial intermediation and economic transformation. This study examines the relationship between capital market development and economic growth in a panel of emerging African economies, namely Nigeria, Ghana, South Africa, Kenya, and Egypt, over the period 1986–2024. Economic growth is proxied by GDP growth rate, while capital market development is measured using market capitalization, value of shares traded, all share index, and number of listed securities. The study adopts a Panel Autoregressive Distributed Lag (Panel ARDL) model estimated using the Pooled Mean Group (PMG) technique to capture both short-run dynamics and long-run relationships across countries. The findings reveal that market capitalization, value of shares traded, and all share index exert positive and statistically significant (p < 0.05) effects on economic growth in the long run. However, the number of listed securities shows a negative long-run effect, indicating that expansion in listings without corresponding improvements in quality may hinder growth. The error correction term confirms convergence to the long-run equilibrium after short-run shocks. The study recommends reinforcement of market liquidity, institutional quality, and investor protection designs in emerging African economies.

Keywords