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Are Banks and Stock Markets Complements Or Substitutes? Empirical Evidence from Three Countries

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  • Sheilla Nyasha

    (University of South Africa)

  • Nicholas M. Odhiambo

    (University of South Africa)

Abstract

This paper has tested whether bank-based financial development and market-based financial development are complements of, or substitutes for, one another in enhancing economic growth in the USA, Brazil and Kenya during the period from 1980 to 2012. These three countries represent a modest cross-section of the general financial structure prevalent in many developed and developing countries. Unlike some of the previous studies, the study employs the newly developed ardl-Bounds-testing approach to carry out the test. The study also employs the method of means-removed average to construct both bank-based and market-based financial development indices. The results of this study show that while in the USA and Brazil, bank-based and market-based financial systems complement each other in enhancing economic growth; in Kenya, the two financial systems seem to be substitutes rather than complements.

Suggested Citation

  • Sheilla Nyasha & Nicholas M. Odhiambo, 2017. "Are Banks and Stock Markets Complements Or Substitutes? Empirical Evidence from Three Countries," Managing Global Transitions, University of Primorska, Faculty of Management Koper, vol. 15(1 (Spring), pages 81-101.
    • Handle: RePEc:mgt:youmgt:v:15:y:2017:i:1:p:81-101
    DOI: 10.26493/1854-6935.15.81-101
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    Cited by:

    1. Odhiambo, Nicholas M. & Nyasha, Shiella, 2018. "Oil prices and economic growth in Kenya: A trivariate simulation," Working Papers 24411, University of South Africa, Department of Economics.

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    More about this item

    Keywords

    bank-based financial development; market-based financial development; economic growth; Unites States of America; Brazil; Kenya;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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