Abstract

The growth performance of Bangladesh over the last one and a half decades along with the stock market development sparks the question of whether stock market development has a significant impact on economic growth of the economy. The study investigates the time series evidence of the influence of stock market development on growth of Bangladesh economy for the period 1993-2016 employing ARDL Bounds testing approach and finds stock market development has direct impact on economic growth both in the short-run as well as in the long run together with financial depth, interest rate spread and real effective exchange rate. Granger causality tests confirm a bidirectional causal relationship between stock market development and economic growth. However, the study fails to identify a system convergent to equilibrium in regard to stock market development along with other factors that has important economic implications. Persistent improvement in financial depth and fall in interest rate spread throughout the sample period with consistent performance of real effective exchange rate except some spikes in recent years raise the demand for playing the needed role by all concerned for confirming the stability of stock market and its development in order to validate the steady state of equilibrium in the long-run.

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