Bangladesh Bank Training Academy Journal

Abstract

The expansion of trade and industry significantly impacts an economy, ultimately influenced by the capital market. A country's central bank, government advisors, and business organizations closely monitor stock market activity. The main objective of this paper is to investigate the role of stock market capitalization in promoting economic growth in Bangladesh. To attain the goal, this study applied the unit root test, Granger causality test, Cointegration techniques, and Vector Error Correction model (VECM) by using yearly time series data from 1990 to 2020. The granger causality showed a bidirectional causal relationship between the variables. The findings confirm a positive and significant impact of stock market capitalization on GDP growth. Furthermore, the estimated error correction term suggests that the economy will correct the disequilibrium in GDP growth and converge to the equilibrium at a 4.2% rate in a year. Therefore, this study advocates the stock market regulatory body address policy concerns that would encourage new companies to enter the market and increase investors' confidence.