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Stock Market Liquidity and Economic Growth: Theory and Evidence

In: Finance, Research, Education and Growth

Author

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  • Ross Levine

Abstract

Consider the following three statements. Liquid stock markets were a pre-condition for the Industrial Revolution and a critical factor underlying long-run growth in many countries. Enhanced stock market liquidity reduces saving rates and weakens corporate control, which retard economic growth. Stock markets are basically a sideshow, a casino where players come to place bets, but where there is little feedback to the real economy. Rigorous theoretical models support each of these statements.1

Suggested Citation

  • Ross Levine, 2003. "Stock Market Liquidity and Economic Growth: Theory and Evidence," Palgrave Macmillan Books, in: Luigi Paganetto & Edmund S. Phelps (ed.), Finance, Research, Education and Growth, chapter 1, pages 3-24, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-4039-2023-2_1
    DOI: 10.1057/9781403920232_1
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    Citations

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    Cited by:

    1. Afonso, António & Blanco-Arana, M. Carmen, 2024. "Does financial inclusion enhance per capita income in the least developed countries?," International Economics, Elsevier, vol. 177(C).
    2. Apergis, Nicholas & Lau, Chi Keung & Xu, Bing, 2023. "The impact of COVID-19 on stock market liquidity: Fresh evidence on listed Chinese firms," International Review of Financial Analysis, Elsevier, vol. 90(C).
    3. Prasad Teja DAKEY, 2023. "Measuring stock market uncertainty," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(2(635), S), pages 149-162, Summer.
    4. Parmendra Sharma & Eduardo Roca, 2011. "Reâ Designing Financial Systems: A Review of the Role of Stock Markets in Developing Economies," Discussion Papers in Finance finance:201120, Griffith University, Department of Accounting, Finance and Economics.
    5. António Afonso & M. Carmen Blanco-Arana, 2022. "Financial and economic development in the context of the global 2008-09 financial crisis," International Economics, CEPII research center, issue 169, pages 30-42.
    6. António Afonso & M. Carmen Blanco-Arana, 2018. "Financial Development and Economic Growth: A Study for OECD Countries in the Context of Crisis," Working Papers REM 2018/46, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.

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