ROLE OF STOCK MARKET DEVELOPMENT IN ECONOMIC GROWTH

Abstract

The development of stock markets is widely regarded as a crucial factor in promoting economic growth. Stock markets provide a platform for raising capital, improving liquidity, and enabling efficient capital allocation. This paper examines the relationship between stock market development and economic growth in the context of Pakistan’s financial system. Using a combination of time-series data from 2010 to 2024 and econometric models such as cointegration and Granger causality, the study assesses the impact of stock market development on key macroeconomic indicators, including GDP growth, investment, and employment. The results indicate a bidirectional relationship between stock market development and economic growth, with stronger effects in periods of financial market liberalization and reforms. The study concludes with policy recommendations to enhance the role of the stock market in driving economic development in Pakistan.