Stock exchange development and economic growth : the case of Poland

Abstract

PURPOSE: The purpose of this paper is to provide a comprehensive and critical review of the theoretical and empirical literature concerning the relationship between stock exchange development and economic growth along with case study of Poland.

DESIGN/METHODOLOGY/APPROACH: The study employs a literature review, analysing a wide range of academic papers, meta-analyses. It reviews theoretical frameworks (supply-leading, demand-following, feedback, neutrality) and evaluates the evolution of empirical methodologies. In case of Poland it employs the ARDL method of estimation of selected variables.

FINDINGS: From the theoretical analysis and review of the research the paper asses that while there is a generally positive link between stock market development and economic growth, the relationship is neither linear nor universal. Liquidity (turnover) is identified as a more robust driver of growth than market size (capitalization). The findings also suggest a "threshold effect" where stock markets only contribute to growth once a certain level of institutional quality and banking sector development is achieved. In case of Poland key findings are that GDP growth in Polish economy is significantly driven by foreign investment and stock market development, provided the market expansion represents real capitalization rather than just speculative trading volume.

PRACTICAL IMPLICATIONS: Findings can be of use to teachers, academics and policy decision-makers.

ORIGINALITY/VALUE: The research can spur further discussion about the methods and measures of stock exchange development and to what extend this development can affect economic growth.