The relationship between economic growth and stock markets

Abstract

In the following work we will have to analyze the effect of financial markets, and more specifically, the stock market, have on economic development. To do this, we will review the literature on the subject, which shows some differences depending on the object of study, but with a prevailing idea: the influence is positive. Following one of the available studies of this literature, we will establish a model that not only analyzes the ratio of the stock exchanges through the capitalization of domestic companies in these markets, but other determinant variables with regard to economic development will be also included. Finally, after estimating several versions of this model, we will conclude that besides existing a positive relationship between stock exchanges and economic growth, the influence of all the explanatory variables, which we will present later, as a whole is much more important for economic development.