QUANTITATIVE ANALYSIS OF THE IMPACT OF THE FINANCIAL MARKET ON THE ECONOMIC GROWTH

Abstract

The subject of this paper is an analysis of the correlation between the financial market’s development level and the level of economic growth. The paper also quantitatively tests a model that describes the impact of the financial market on economic growth. More specifically, it aims to provide the creators of the economic policies and financial markets regulators with a better understanding of the financial market’s role in explaining the variance in the gross domestic product. The paper analyzes the correlation between financial market develop- ment level and market capitalization per listed company in 56 countries from 2016 to 2020, using two linear regression models and two panel regressions. The results of the analysis suggest that there is a strong positive correlation between the analyzed variables. These findings indicate that the stock market capitalization can reliably estimate the gross domestic product. Thus, the key implication of the paper is for the policymakers who should strive to stimulate the stock market development.