Private capital flows, stock market and economic growth in developed and developing countries: a comparative analysis

• Main Authors: Choong, Chee Keong, Baharumshah, Ahmad Zubaidi, Yusop, Zulkornain, Habibullah, Muzafar Shah
• Format: Article
• Language: English
• Published: Elsevier 2010
• Online Access: http://psasir.upm.edu.my/id/eprint/16349/1/Private%20capital%20flows.pdf; http://psasir.upm.edu.my/id/eprint/16349/

Empirically we investigate how three types of private capital flows could promote economic growth in recipient developed and developing countries. Our focus is on the role of stock markets as a channel through which foreign capital flows could promote growth. The findings reveal that FDI exhibits a positive impact on growth, while both foreign debt and portfolio investment have a negative impact on growth in all sample countries. However, our results indicate that stock markets might be a significant channel or leading institutional factor through which capital flows affect economic growth. The findings provide clear implications that the negative impact of private capital flows can be transformed into a positive one if the stock market development has attained a certain threshold level, regardless of whether it is in developed or developing countries.