A study of relationship between stock market development And economic growth

Abstract

This research study is carried out with a purpose to explore the relationship between stock market development and economic growth in Pakistan with the role of exchange rate and FDI as moderators. Despite the significance, the role of exchange rate and FDI in the development of stock market as well as economic growth is unavoidable since they all are interlinked somehow. The study uses time series data for a period of 25 years from 1993 to 2017; data for the study is collected from authentic sources World Bank and Pakistan Stock Exchange. In order to test the proposed hypothesis, several statistical tests such as descriptive statistics, unit root test, correlation analysis and regression analysis are employed. Results of the study revealed that market capitalization has significant positive impact on the economic growth and the relationship between both variables is moderated by FDI inflow. Furthermore, the study suggests that government should provide better economic and political environment in which the capital market can prosper, and it attracts foreign investors to develop more successful businesses.