Abstract:
The relationship between stock market development and economic growth
varies across nations and regions. This relationship is of significance to regulatory
authorities, investors and portfolio managers in their operations aimed at enhancing
the welfare of the citizens and clients at large. The purpose of this study is to
examine the relationship between these two variables in Zimbabwe for the period
1989 to 2014. The paper employed the Vector Error Correction Model approach after
establishing the order of integration (unit root tests) and cointegration between
variables. All the variables were found to be stationary at 1% level after first
differencing using the Phillips-Peron tests. The long run relationship was negative,
whereas the short run coefficients were insignificant. Though contrary to financial
theory, the results, to a large extent, testify to what happened during the period.
Based on these findings, the Zimbabwe Stock Exchange and Securities and
Exchanges Commission are urged to come up with alternative products to lure new
listings from the small to medium enterprises. It is also recommended that all the
stakeholders focus beyond the Zimbabwe Stock Exchange to promote economic
growth as the firms seem to raise funds from other sources.
