An investigation about the linkage between stock market development and economic growth in VietNam
Abstract
This study aims to test the direction of causality relation between stock market development and economic growth in Vietnam by using two proxies to indicate the development of stock market which are: stock market capitalization ratio and stock market turnover ratio and one proxy to measure the economic growth which is real Gross Domestic Product growth. VAR model is applied in this study to investigate the relation between stock market development and economic growth in Viet Nam from 2006 to 2016. Besides, the test used in this study was Granger Causality test with the data collected from the first quarter of 2006 to the fourth quarter of 2016. The study found that there is a causal relationship between stock market capitalization ratio and economic growth but this relationship is undirectional from economic growth to stock market capitalization ratio. This supports the statement that the economy’s development has boosted stock market’s expansion. Moreover, this study proves the causality linkage between stock market turnover ratio and the growth of economy that does not exist. Because stock market turnover ratio represents for stock market’s liquidity, so that, in other words, market liquidity has not been strongly affected by economic development. To sum up, Vietnam economic growth is not significantly positive influenced by stock market while the development of stock market is significantly affected by the economic growth in size aspect.