Does Opening a Stock Exchange Increase Economic Growth?

Scott Baier, Gerald P. Dwyer Jr., and Robert Tamura
Working Paper 2003-36
December 2003

PDF iconDownload the full text of this paper in Adobe Acrobat 4.0 PDF format - (202 KB)

We examine the connection between the creation of stock exchanges and economic growth with a new set of data on economic growth that spans a longer time period than generally available. We find that economic growth increases relative to the rest of the world after a stock exchange opens. Our evidence indicates that increased growth of productivity is the primary way that a stock exchange increases the growth rate of output, rather than an increase in the growth rate of physical capital. We also find that financial deepening is rapid before the creation of a stock exchange and slower subsequently.

JEL classification: G15, G10, G15, D90, O16

Key words: economic growth, stock exchange, efficiency, productivity, financial deepening

The authors thank Scott Hein for helpful comments. Shalini Patel provided her usual careful research assistance. Earlier versions of this paper were presented at the conference on Finance and Growth at the Federal Reserve Bank of Atlanta and a Banking Workshop at the Bank of Finland. We thank the participants at both conferences for many helpful comments and James Lothian and Paul Wachtel for their written comments. This paper is forthcoming in the Journal of International Money and Finance. The views expressed here are the authors’ and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the authors’ responsibility.

Please address questions regarding content to Scott L. Baier, Clemson University, 222 Sirrine Hall, Clemson, SC 29634-1309, 864-656-4534,, Gerald P. Dwyer Jr., Federal Reserve Bank of Atlanta, 1000 Peachtree Street, NE, Atlanta, GA 30309-4470, 404-498-7095,, or Robert Tamura, Clemson University, 222 Sirrine Hall, Clemson, SC 29634-1309, 864-656-1242,