Economic development in the modern economic system flexible joints on an efficient and effectual fiscal sector – deregulating involvement rate, taking selective recognition control and encourages free competition in the banking sector that pools domestic nest eggs and mobilizes capital for productive investings. Without an effectual set of fiscal establishments, productive undertakings may stay undeveloped and well cut growing from the degrees that might hold given appropriate policies and market constructions.
Harmonizing to Garcia and Liu ( 1999 ) , fiscal mediators ( Bankss, insurance companies and pension financess ) and the fiscal markets ( stock markets and bonds ) provide claims to future expected hard currency flows in fiscal system. Fiscal systems aid to mobilise and pool nest eggs, provide payment services that facilitate the exchange of goods and services every bit good as the efficient allotment of capital among others which heighten long-run economic growing Demirguc-kunt ( 2006 ) . Nowadays, the progressively emerging of fiscal mediators plays an of import function in supplying fiscal aid for the enlargement of corporation and enhances the economic development.
Levine and Zervos ( 1998 ) , Rousseau and Wachtel ( 2000 ) , Arestis et Al. ( 2001 ) , Beck and Levine ( 2004 ) and Dritsaki et Al. ( 2005 ) have all considered stock markets and Bankss jointly with economic growing in their work. They further argue that excluding a stock market variable makes it hard to suitably analyze bank development and economic growing when commanding for stock market system. However, in the instance of causal relationship, some research workers have argued that it is the economic activities in a state that constitute the cardinal drivers of stock market development while others are of the position that it is instead growing in the stock market that leads to economic growing Filer, R et Al. ( 1999 ) and Yartey ( 2008 ) .
In a nutshell, without development an economic system operates as a zero – amount game in which the additions of some are obtained by taking from others, whereas with development, the job is the much easier one of possibly giving slightly more to some than others. Therefore, this paper investigates the relationship between stock market and economic development in the five selected Association of Southeast Asiatic Nations ( ASEAN ) states.
1.2 Research Issue
The development of stock market capitalisation of ASEAN Exchanges was roses to US $ 2.1trillion, with over 3,600 listed companies, as at terminal August 2012 where authorities demand to liberalise the fiscal system in order to accomplish efficient of capital allotment. Hence, when it comes to the particular relationship between stock markets and Bankss in the economic development, there are besides conflicting theoretical anticipations.
Table 1: Stock Market Capitalization to GDP ( 1990 – 2011 )
of listed companies ( current US $ Billions )
GDP ( changeless 2000
US $ Billions )
Dutch east indies
Beginning: World Development Indicator
The size of the ASEAN states stock market is measured utilizing the typical indices of stock market capitalisation to GDP ratio. Hence, high stock market capitalisation to GDP ratio reflects the growing of ASEAN ‘s stock market and the turning usage of equity funding. It is besides deserving that there has been a important growing in the figure of listed companies in the ASEAN Stock Exchange during the past two decennaries. This is shown in Table 1, where the Malaysia stock market capitalisation is the largest over five ASEAN states were US $ 4,199 billion from 1990 until 2011 with the ratio was 1.95. Then, it followed by Singapore, the 2nd largest stock market with market capitalisation were US $ 4,088 billion and the ratio was 1.84.
As indicated in Figure 1, the stock market development, which measures the deepness of five ASEAN ‘s stock markets which traveling up and down from 1990 to 2011 particularly, aggressively dropped in 1997 and 2008. This was attributed chiefly to the fiscal crisis that faced by ASEAN states and recognition crisis in United Stated ( U.S. ) that lead to a monolithic autumn in market capitalisation in bend was a direct consequence of the worsening usage equity funding which slow down the economic development. Therefore, it is necessary to place whether at that place any relationship between stock market capitalisation and economic development in long-run.
The relationship between stock market and economic development, particularly, in ASEAN states bring varies of the position among economic experts that there is either no correlativity or negative relationship between stock market development and economic growing Shahbaz et Al. ( 2008 ) . On the other manus, other economic experts believe that there is positive relationship between stock market development and economic growing Levine and Zervos ( 1996, 1998 ) .
Stiglitz ( 1985 ) has shown that Bankss perform a better function in advancing economic growing than stock markets particularly when it comes to resource allotment. Singh ( 1997 ) indicates that stock markets do non take to long-term economic growing due to macroeconomic instability, volatility and flightiness of pricing procedure. Japillo and Pagano ( 1994 ) and Atje and Jovanovich ( 1993 ) have indicated that stock markets contribute positively in economic growing. However, Boyd and Prescott ( 1986 ) , Boyd and Smith ( 1998 ) , Claessens et Al. ( 2002 ) and Blackburn et Al. ( 2005 ) have all shown that both stock market and Bankss are necessary in advancing economic growing. Therefore, they consider stock markets as compliment to Bankss instead than replacements.
The issue of involvement here is, is at that place any nexus between stock market and economic development? In the visible radiation of this spread, this undertaking paper sought to analyze whether the positive relationship between stock market and economic development particularly in selected five ASEAN states. In add-on, in which extent they complement each other can advance economic development.
1.4 Research Aims
This survey investigates the relationship between two chief constituents of fiscal development and economic development in five ASEAN states selected viz. , Indonesia, Malaysia, Singapore, the Philippines, and Thailand utilizing yearly informations from 1982 to 2011. The chief aim is to analyze the relationship of stock market and bank on the economic development.
To analyze the long-term relationship between stock markets and economic development.
To look into the presence of causal consequence between stock markets and economic development.
1.5 Research Questions
Specifically, there are two major inquiries need careful probe that will function as the engine of this survey. The theoretical argument and the empirical observation give rise to several inquiries:
To look into whether stock market has had a positive impact on economic development in the long-run?
To look into whether stock market can advance long-term economic development – determine is there an optimum fiscal construction ( stock market ) to reflect the germinating demands of economic systems?
Significance of the Study
This survey incorporating the issue of comparative importance of stock markets in the economic development, the channel and the complementarities issue in the analyses. The significance of the survey as follows: –
This survey would therefore provide extra information on the nature of the relationship between stock market development ( capitalisation ) and economic development in five ASEAN states.
This survey adds a new component to the empirical growth-finance literature by using an alternate attack to analysing the derived function and complementary consequence of different constituents of fiscal development on economic development. In add-on, the consequences complement bing causality grounds.
Again, by using co-integration technique and time-series informations, the survey would supply a more appropriate model for analysing the dynamic relationship between stock market and economic development.
1.7 Organization of Project Paper
Chapter 1 provides an debut on the job of research. Chapter 2 the relevant literatures related to stock market and economic development will be reviewed. This is followed by a proposal of the theoretical and empirical model. Chapter 3 discusses the methodological analysis of survey and besides the beginnings of informations. Subsequently, Chapter 4 analyzes the findings of the survey. Finally, the managerial deductions and the decision of the research will be discussed in Chapter 5.