DOI: 10.54821/uiecd.1711743 ISSN: 2718-0247

Stock Market Development, Financial Development, and Economic Growth Relationship: An Application in Fragile Economies

Merve Yıldırım, Durmus Yıldırım
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This study investigates the relationship between stock market development, financial development, and economic growth in fragile economies. Annual data from 2000 to 2020 are analyzed for Türkiye, Brazil, India, Indonesia, Mexico, and South Africa using panel data techniques. Stock market development is measured by the ratio of market capitalization to GDP. The independent variables are economic growth (GDP growth rate), financial development (domestic credit to the private sector), and foreign direct investment (FDI as a share of GDP). The study applies the Panel ARDL method to examine both short- and long-term relationships. The results indicate that economic growth and bank credit positively influence stock market development in the long term, while FDI has no significant effect. Panel causality tests show unidirectional causality from stock market development to credit and from FDI to stock market development. The findings highlight the importance of strengthening financial systems to enhance market development in fragile economies, while suggesting that FDI alone may not generate long-term benefits due to structural vulnerabilities.

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