Table 4.4 presented the fixed and random effects regression results of the relationships between economic growth and stock market size in developed economies. In the models, GDPR was the dependent variables while MCR and interest rate were introduced as explanatory variables.
Based on the insignificance of the coefficient of Hausman test, it followed that random effect model estimates were preferred above that of the fixed effect. The intuition that arose from this was that differences across the countries had some influences on the GDPR. The
F-statistic was significant at the 5% level suggesting that all the coefficients in the model were different from zero. However the Adjusted R-square showed that the explanatory variables (MCR and INT) were able to explain only about 17.1% of the total variation in GDPR. The coefficient of MCR was significant at the 1% level and it implied that on average, a hundred unit increases in MCR would induce about 2.6 unit increases in GDPR. The coefficient of INT was also significant at the 1% level suggesting that on average, one unit change in interest rate in developed economies would result in about 0.237 unit change in GDPR. The conclusion that emerged from the result obtained was that GDPR in developed economies was positively related to MCR and INT.
TABLE 4.4 THE RELATIONSHIPS BETWEEN STOCK MARKET SIZE AND ECONOMIC GROWTH IN DEVELOPED ECONOMIES
Explanatory Variables Fixed Effects Random Effects
Constant -3.006***
(0.005)
-2.158**
(0.030)
MCR 0.031***
(0.000)
0.026***
(0.000)
INT 0.294***
(0.001)
0.237***
(0.004)
Adj. R-Squared 0.206 0.171
F-statistic 5.525***
(0.000)
9.997***
(0.000)
No. of Countries 3 3
No of Observations 88 88
Hausman Test
Test Summary Chi-Sq. Statistic Prob.
Cross-section random 3.502 0.174
Note: *** denotes significant at 1%, ** denotes significant at 5%; * denote significant at 10%.
Table 4.5 presented the fixed and random effect regression results of the relationship between stock market liquidity and economic growth in developed economies. The model estimate expressed GDPR as a function of value traded ratio, turnover ratio and interest rate.
The insignificance of the coefficient obtained from the Husman test suggested that the random effect would be preferred above its counterpart (Fixed-Effect model estimates). This was because the differences across the countries influenced the behaviour of GDPR in the model.
The F-statistic was also significant at the 5% level, which implied overall significant of the model but the included explanatory variables were able to explain about 11.2% of the total variation in the GDPR of developed economies. The coefficient of VTR, which was significant at the 5% level, implied that on average, one unit increase in VTR would result in about 0.016 unit increase in GDPR. However, the coefficient of INT was not statistically significant. The coefficient of TOR was significant at the 1% level but it impacted negatively on GDPR, for instance, on average, a unit increase in TOR would induce a reduction of about 0.025 units in GDPR of the developed economies.
TABLE 4.5 THE RELATIONSHIPS BETWEEN STOCK MARKET LIQUIDITY AND ECONOMIC GROWTH IN DEVELOPED ECONOMIES
Explanatory Variables Fixed Effects Random Effects
Constant 2.347***
(0.008)
2.241***
(0.001)
VTR 0.015**
(0.038)
0.016**
(0.024)
TOR -0.025***
(0.008)
-0.026***
(0.005)
INT 0.043
(0.663)
0.069 (0.373)
Adj. R-Squared 0.093 0.112
F-statistic 2.449**
(0.032)
4.540**
(0.005)
No. of Countries 3 3
No of Observations 85 85
Hausman Test
Test Summary Chi-Sq. Statistic Prob.
Cross-section random 1.353 0.717
Note: *** denotes significant at 1%, ** denotes significant at 5%; * denote significant at 10%.
The analysis presented in Table 4.6 related with the fixed and random effect regression results of the relationship between economic growth and stock market size in emerging economies.
TABLE 4.6 THE RELATIONSHIPS BETWEEN ECONOMIC GROWTH AND STOCK MARKET SIZE IN EMERGING ECONOMIES
Explanatory Variables Fixed Effects Random Effects
Constant 5.223***
(0.001)
6.365***
(0.000)
MCR 0.019***
(0.004)
0.014**
(0.027)
INT -0.052**
(0.042)
-2.161**
(0.034)
Adj. R-Squared 0.718 0.13
F-statistic 38.206**
(0.000)
6.571***
(0.002)
No. of Countries 4 4
No of Observations 74 74
Hausman Test
Test Summary Chi-Sq. Statistic Prob.
Cross-section random 7.705** 0.021
Note: *** denotes significant at 1%, ** denotes significant at 5%; * denote significant at 10%.
The significance of the coefficient of Hausman test implied that as regards the relationship between economic growth and stock market size in emerging economies, the causes of changes in GDPR was free from individual-country specific characteristics and as such fixed effect model estimates were expected to be stable than that of the random effect. The F-statistic was significant at the 1% level implying that the overall model specification was statistically significant. The result of the Adjusted R-square suggested that only 71.8% of the total variation in GDPR of emerging economies were captured by the explanatory variables.
The estimated coefficients of both MCR and INT were statistically significant but on average a unit increase in MCR would led to 0.019 increase in GDPR while on average one unit increase in INT would result in 0.52 reduction in GDPR. The conclusion that emerged on the effect of stock market size in emerging economies on GDPR was that during the period covered by this study, MCR affected GDPR positively. On the other hand, INT had inverse relationship with GDPR.
Table 4.7 illustrated the results of the relationship between stock market liquidity and economic growth in emerging economies.
TABLE 4.7 THE RELATIONSHIPS BETWEEN STOCK MARKET LIQUIDITY AND ECONOMIC GROWTH IN EMERGING ECONOMIES
Explanatory Variables Fixed Effects Random Effects
Constant 6.818***
(0.000)
5.095***
(0.000)
VTR 0.013*
(0.077)
-0.005***
(0.435)
TOR -0.002
(0.703)
0.026***
(0.000)
INT -0.076*
(0.08)
-0.070***
(0.000)
Adj. R-Squared 0.698 0.404
F-statistic 27.982***
(0.000)
16.82***
(0.000)
No. of Countries 4 4
No of Observations 71 71
Hausman Test
Test Summary Chi-Sq. Statistic Prob.
Cross-section random 68.272*** 0.000
Note: *** denotes significant at 1%, ** denotes significant at 5%; * denote significant at 10%.
Hausman test suggested that fixed effect was more appropriate relative to the random effect model. The fixed effect model was significant at the 1% level and about 69.8% of the total variations in GDPR were accounted for by VTR, TOR and INT in emerging economies. The estimated coefficients of VTR was statistically significant, on average, one unit increase in VTR would result in about one-hundredth increase in GDPR. The result also revealed that a unit increase in INT would result in about 0.076 reductions in GDPR.
Table 4.8 presented the fixed and random effects estimation of the relationship between economic growth and stock market size in developing economies
TABLE 4.8 THE RELATIONSHIPS BETWEEN ECONOMIC GROWTH AND STOCK MARKET SIZE IN DEVELOPING ECONOMIES
Explanatory Variables Fixed Effects Random Effects
Constant 4.825***
(0.000)
3.945***
(0.001)
MCR 0.033
(0.196)
0.038 (0.123)
INT -0.112**
(0.040)
-0.060 (0.217)
Adj. R-Squared 0.264 0.031
F-statistic 6.609***
(0.000)
2.229 (0.115)
No. of Countries 4 4
No of Observations 79 79
Hausman Test
Test Summary Chi-Sq. Statistic Prob.
Cross-section random 6.239** 0.044
Note: *** denotes significant at 1%, ** denotes significant at 5%; * denote significant at 10%.
Hausman test supported the appropriateness of the fixed effect model. On overall bases, the fixed effect model was statistically significant but the explanatory variables included in the model accounted for about 26.4% of the total variation in GDPR. Although MCR had positive relationship with economic growth in developing economies, its coefficient was not statistically significant. The coefficient of interest rate in developing economies suggested that a unit increase in interest rate would result in a reduction of 0.112 units in GDPR.
The result of the relationship between stock market liquidity and economic growth in developing economies were presented in Table 4.9. The null hypothesis for the Husman Test (the preferred model is random) was rejected while the alternative was accepted. The result of the F-statistics implied that overall, the fixed effect model was statistically different from zero and the explanatory variables included in the model were able to explain about 26.5% of variations in GDPR.
TABLE 4.9 THE RELATIONSHIPS BETWEEN STOCK MARKET LIQUIDITY AND ECONOMIC GROWTH IN DEVELOPING ECONOMIES
Explanatory Variables Fixed Effects Random Effects
Constant 3.708***
(0.001)
1.705**
(0.014)
VTR -0.185
(0.667)
-0.364 (0.372)
TOR 0.197
(0.204)
0.312 (0.029)
INT -0.068
(0.234)
-0.031 (0.370)
Adj. R-Squared 0.265 0.131
S.E. of Regression 2.389 2.598
Durbin Watson-stat 1.156 0.940
F-statistic 5.323***
(0.000)
4.608***
(0.005)
No. of Countries 4 4
No of Observations 73 73
Hausman Test
Test Summary Chi-Sq. Statistic Prob.
Cross-section random 15.595*** 0.001
Note: *** denotes significant at 1%, ** denotes significant at 5%; * denote significant at 10%.
VTR and interest rate impacted negatively on GDPR, while TOR impact on GDPR was positive though not significant. The conclusion that emerged from the foregoing was that VTR, INT and TOR were not sufficient enough to explain the variation in economic growth of developing economies.
In sum, Table 4.10 presented a snapshot of the findings as regards the response of economic growth to stock market size and liquidity.
TABLE 4.10 SYNOPSES OF THE FINDINGS
MCR INT VTR TOR INT
Developed
+*** +***
Developed+** -*** +
Emerging
+*** -**
Emerging+* - -*
Developing
+ -**
Developing- + -
Note: *** denotes significant at 1%, ** denotes significant at 5%; * denote significant at 10%.