The Role Of Stock Market In Promoting Economic Growth In Libya

• Main Author: Amna Khalifa Salem Edweib
• Format: Thesis
• Language: English
• Published: Universiti Sains Islam Malaysia 2019
• Subjects: Libyan Stock market; Causality; Economic Growth; GDP
• Online Access: http://ddms.usim.edu.my:80/jspui/handle/123456789/18170

Many studies have attempted to investigate the relationship among stock market development and economic growth. Libya is one of the development countries with a very emerging stock market. This research examines the role and casual effect of Libyan Stock Market (LSM) on economic growth in Libya. It also aims at achieving two additional objectives: to evaluate the LSM performance, and to know the extent of the procedures taken by the market to attract local and foreign investors. To achieve its objectives, this research uses two approaches: quantitative and qualitative methods. Quantitative methods include Vector Error Correction Model VECM, granger causality and co-integration tests using monthly data for the period of year 2008:M4 to year 2011:M2. In addition, questionnaires were distributed to the investors, stock market players, contribution companies’ officers, and brokerage officers to examine the performance of LSM and its role towards economic growth of Libya. Meanwhile, a series of interviews with the LSM top management were conducted to acquire information on the performance of LSM and measures taken to attract investors to invest in LSM. Libyan Stock Market is proxied by size (Market Capitalization Ratio MCR) and Liquidity (Turnover Ratio TR) and Index IDX, while Real Gross Domestic Product (RGDP) was taken as a proxy for economic growth. The findings of Granger causality test and VECM modelling indicate that LSM has no significant contribution towards economic growth. Since both tests are based on first-difference data, no relationship between the stock market and economic growth in the short term behaviour was found. However, the result of co-integration test found that there is long run relation among the variables. From the results of Granger causality test and VECM modelling, it seems that LSM has not significantly contributed to economic growth. In contrast, questionnaire and interview results found that L has a significant role in economic growth. The results also found that the performance of the LSM is satisfactory, given its recent establishment date, and the market undertook effective procedures to attract local and foreign investors to improve its role in economic growth in Libya. The results indicate that respondents and interviewees hold an optimistic view of the role of LSM towards Libya’s economic growth due to the measures currently taken to develop the market. This research recommends for policy changes by the Libyan government to encourage companies and Libyan people as prospective investors to invest in the stock market. Besides, they have to support the market to take steps in order to attract the local and foreign investors. This study considers one of the few studies that employ cointegration test to examine the long run linkage between the stock market and economic growth in Libya. On the other hand, in usual, empirical studies using quantitative methods to study the relations. However, this study has used qualitative and quantitative methods to investigate the relationship between the two fields. The contribution of this study also will be beneficial, both academically and professionally. Academically, this study is the first study that examines the causal relationship between Libyan Stock Market and economic growth. Professionally, managers will further seek out the practical implications offered by this research in their actual relationships with their stock market performance. Furthermore, this study is a scientific research that could be used by the regulators to move forward since LSM has little experience as compared to other markets in the other countries. The results of this research, especially on the development measures taken by LSM, are expected to provide more confidence to the investors that would encourage them to invest in the stock market in Libya. In addition to that, the present study would contribute significantly to the literature by examining the nascent operation of LSM and its contribution to the economic growth.