Relationship between stock market development and economic growth in Vietnam
Abstract
This paper examines the relationship between stock market development and economic growth using time-series data from Vietnam. Three proxies of stock market development are used in the study, namely: stock market capitalization, stock market value traded and stock market turnover. Toda and Yamamoto causality approach (1995) are employed on Vector Autoregressive Model (VAR) to assess the nexus between stock market development and economic growth. The empirical results show that none of three stock market development indicators causes the economic growth. It means that the stock market development’s role to Vietnam economy is dubious. It is not efficient and well- functioning enough to boost the economic activity. However, it is found that there is a causal flow from economic growth to the stock market capitalization ratio. It can be argued that the development of the economy has supported the expansion of stock market. But there is no evidence for the causality direction from the growth to two remaining indicators examined in this study. Stock market value traded and stock market turnover represent for the liquidity of stock market. Thus, it can be said that the economic development does not have robust influence on the market liquidity. In conclusion, Vietnam stock market does not have significant positive impact on the economic growth while the growth has significant effect to the development of stock market on considering
the aspect of size but not the aspect of liquidity.