This article investigates the relationship between stock market growth and economic growth, financial liberalisation policies, foreign portfolio investment and country risk in 40 emerging economies between the period 1980–2000. Two Stages Least Squares combined with Fixed Effect technique are employed. The results suggest that economic growth, financial liberalisation policies and foreign portfolio investments were the leading factors of the emerging stock markets growth. This seems to validate the demand-following hypothesis suggesting that economic growth has indeed activated stock markets in these countries. In addition, the findings imply that stock markets development and expansion is a multifaceted process.
Barro, R. J. (1997), Determinants of Economic Growth: A Cross-Country Empirical Study. Cambridge: Cambridge University Press .
2.
Bekaert, G. and C.R. Harvey (2000), ‘Foreign Speculators and Emerging Equity Markets’ , Journal of Finance, 55(2): 565–614 .
3.
Bekaert, G. , C.R. Harvey and C. Lundblad (2002), ‘Does Financial Liberalization Spur Growth?’ , Paper presented at the joint conference between the World Bank and George Washington University on Financial Globalization: A Blessing or a Curse?, 30–31 May 2002, Washington DC.
4.
Boutchkova, Maria and William L. Megginson (2000), ‘Privatization and the Rise of Global Capital Markets’ , Financial Management, Winter: 31–76 .
5.
Calderon-Rossell, J.R. (1990), ‘The Structure and Evolution of World Stock Markets’ , in S.Ghon Rhee and Rosita P. Chang (eds), Pacific Basin Capital Markets Research Proceeding of the First Annual Pacific Basin Finance Conference, Taipei, China, 13–15 March 1989. Amsterdam: North-Holland.
6.
Calderon-Rossell, J.R. (1991), ‘The Determinants of Stock Markets Growth’ , in S. Ghon Rhee and Rosita P. Chang (eds), Pacific Basin Capital Markets Research Proceedings of the Second Annual Pacific-Basin Finance Conference, Vol. II, Bangkok, Thailand, 4–6 June 1990. Amsterdam: North-Holland.
7.
Caldino, A. , A. Micco and G. Ordonez (2002), ‘Financial Liberalization and Growth: Empirical Evidence’ , Paper presented at the joint conference between the World Bank and George Washington University on Financial Globalization: A Blessing or a Curse?, 30–31 May 2002, Washington DC.
8.
Collins, S. and B.P. Bosworth (1997), ‘Economic Growth in East Asia: Accumulation versus Assimilation’ , Brookings Papers in Economic Activity, 2: 135–203 .
9.
Das, D.K. (2003), ‘Financial Liberalization in the Emerging Market Economies’ , Journal of Asset Management, 3(4): 345–59 .
10.
Davidson, P. (1978), Money and the Real World, 2nd ed. London: The Macmillan Press Ltd .
11.
Edison, H.J. , M.W.Klein , L.A. Ricci and S. Torsten (2004), ‘Capital Account Liberalization and Economic Performance: Survey and Synthesis’ , IMF Staff Papers, 51: 2220–56 .
12.
Errunza, V. (1982), ‘Investment in Developed and Less Developed Countries’ , Journal of Financial and Quantitative Analysis, XVII(5): 749–62 .
13.
Goldsmith, R. (1969), Financial Structure and Development. Yale: Yale University Press .
14.
Greenwood, J. and B. Jovanovic (1990), ‘Financial Development, Growth, and the Distribution of Income’ , Journal of Political Economy, 98: 1076–1107 .
Henry, P.B. (2000b), ‘Does Market Liberalization Cause Investments Booms?’ , Journal of Finance and Economics, 55 (2): 529–63 .
17.
International Finance Corporation (IFC). Emerging Stock Markets Factbook (various issues).
18.
International Monetary Fund (IMF) (2000), International Financial Statistics (CD-ROM).
19.
Kaminsky, G.L. and S.L. Schmukler (2002), ‘Short-Run Pain, Long-Term Gain: The Effects of Financial Liberalization’ , Paper presented at the joint conference between the World Bank and George Washington University on Financial Globalization: A Blessing or a Curse?, 30–31 May 2002, Washington DC.
20.
Kim, J. and L. Lau (1994), ‘The Sources of Economic Growth of the East Asian Newly Industrialized Countries’ , Journal of the Japanese and International Economics, 8: 235–71 .
21.
King, R.G. and R. Levine (1993), ‘Finance and Growth: Schumpeter Might Be Right’ , Quarterly Journal of Economics, 108(3): 688–702 .
22.
Klein, M.W. (2003), ‘Capital Account Openness and the Varieties of Growth Experience’ , NBER Working Paper No. 9500.
23.
Levine, R. and S. Zervos (1998a), ‘Stock Markets, Banks, and Economic Growth’ , The American Economic Review, 88 (3): 537–58 .
24.
Levine, R. and S. Zervos (1998b), ‘Capital Control Liberalization and Stock Market Development’ , World Development, 26: 1169–83 .
25.
Lieberman, I. and C.D. Kirkness (1998), Privatization and Emerging Equity Markets. Washington DC: The World Bank .
26.
Litzenberger, R.H. and A.P. Budd (1972), ‘Secular Trends in Risk Premiums’ , The Journal of Finance, 27: 857–64 .
27.
Mishkin, F. (2001), ‘Financial Policies and the Prevention of Financial Crises in Emerging Market Countries’ , NBER Working Paper No. 8087.
28.
Modigliani, F. and E.C. Perotti (1991), ‘The Rules of the Game and the Development of Security Markets’ , Working Paper 9116.
29.
Stulz, R.M. (1999), ‘International Portfolio Flows and Security Markets’, in M. Feldstein (ed.), International Capital Flows. Chicago: University of Chicago Press .
30.
The Political Risk Services (PRS) Group. International Country Risk Guide (various issues).
31.
Voth, H. J. (2003), ‘Convertibility, Currency Controls and the Cost of Capital in Western Europe, 1950–1999’ , International Journal of Finance & Economics, 8(3): 255–76 .
32.
World Bank (2000), World Development Indicators (CD-ROM).
33.
Young, A. (1992), ‘A Tale of Two Cities: Factor Accumulation and Technical Change in Hong Kong and Singapore’ , National Bureau of Economic Research, Macroeconomic Annual, 13–54 .
34.
Young, A. (1994), ‘Lessons from the NICs: A Contrarian View’ , European Economic Review, 38: 964–73 .
