IMPACT OF STOCK EXCHANGE ON ECONOMIC GROWTH OF …

Abstract

Stock exchange has great importance and throughout the world the stock exchange has assumed important part in national economic development and improvement. Every country focuses on the economical condition of their country. Understanding of stock exchange is necessary that what is stock exchange and what is its main function in any country to boost the economy. This study is conducted to examine the Impact of Stock exchange development on Economic Growth of Pakistan. The data is collected on quarterly basis from Period 2012 to 2016 from Pakistan Stock Exchange and State Bank of Pakistan’s websites. In studies which are conducted previously, mostly one variable is used to check the behavior of the stock exchange. But in this study three variables Stock Price Index, Market capitalization and Stock Return are used. These independent variables fully describe the stock exchange development in Pakistan. Industrial Production Index is used as dependent variable and Stock Price Index, Market Capitalization and Stock Return are used as independent variables. To test these variables relation OLS regression is used in this study. Results show that stock exchange development plays important role in the economic growth of Pakistan. All three independent variables i.e. Stock Price index, Market Capitalization and Stock Return have significant positive impact on economic development of Pakistan. Strong policies should be made to boost the development of the stock exchange. To boost the investment there is intense need of strong policies for foreign and domestic investors that could increase their stock return. Special focus should be made to increase the foreign investment in Pakistan because its strong influence is observed on economic development of Pakistan.