The Impact of Stock Market Development on Economic Growth of Sri Lanka

International Journal of Economics and Management Studies

© 2020 by SSRG - IJEMS Journal

Volume 7 Issue 6

Year of Publication : 2020

Authors : Herath, H.M.S.P.

10.14445/23939125/IJEMS-V7I6P115

How to Cite?

Herath, H.M.S.P., "The Impact of Stock Market Development on Economic Growth of Sri Lanka," SSRG International Journal of Economics and Management Studies, vol. 7,  no. 6, pp. 97-100, 2020. Crossref, https://doi.org/10.14445/23939125/IJEMS-V7I6P115

Abstract:

This study examines the linkage of Sri Lanka’s stock market development and its impact on economic performance. The primary objective of the study is to estimate the impact of stock market development on the economic growth of Sri Lanka. The study uses secondary data to estimate the effects of stock market performance on economic growth for the period starting from 1990 to 2019. Secondary data are mainly based on the data published by the Colombo Stock Exchange of Sri Lanka (CSE) and the Central Bank of Sri Lanka (CBSL). To achieve the study objectives, mainly the Ordinary Least Square (OLS) regression model was applied. In determining stock market liquidity, the study employs turnover ratio (TR), and the market capitalization ratio (MCR) is calculated to measure the size of the stock market. For estimating the impact of market liquidy and market size on economic growth, turnover ratio and market capitalization ratio was included in the regression model. In addition to that, regression results were derived by adding the same two variables with a time lag. The estimated OLS regression coefficients indicate that the turnover ratio positively influences the gross domestic product of Sri Lanka without any time lag. However, the findings of the study show that the market capitalization ratio positively influences gross domestic product with a time lag.

Keywords:

Economic Growth, Liquidity, Market Size, Stock Market Development.

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