The impact of stock market development economic growth in Tanzania

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University of Dar es Salaam
Opening of Dar es Salaam Stock Exchange (DSE) in 1998 followed liberalization of the financial sector in 1991. The expectation had, was that the stock market would contribute to the achievement of economic growth in Tanzania. However, the evidence generated by previous studies suggested that the impact of stock markets in economic growth is quite uncertain. This study, therefore, aimed at generating more empirical evidence on the impact of stock market on economic growth using data points that extended from 1976 to 2006. In this regard, the study estimated two error correction models (ECM) where the impact of stock market development and the banking sector on economic growth in Tanzania were analyzed. The results indicated that stock market development measured by turnover ratio, had a lagged but significant negative impact on the rate of economic growth suggesting that the screening, monitoring of firms investments by the shareholders is yet to be efficiently done. The variables of the banking sector which were broad money supply and real saving interest rates exerted an immediate significant negative impact on growth and the lagged impact was found to be significantly positive. The results, suggest enforcement of transparency of the listed companies to the shareholders so as to enable them to screen and monitor their investment decisions. Also the banking sector must reduce its bureaucracy in distributing loans, and lower the lending rates to enable their loans easily accessible by the investors able and willing to invest in productive economic activities that would raise the rate of economic growth.
Available in printed form, East Africana Collection, Dr. Wilbert Chagula Library, Class mark (THS EAF HG 4551.M47)
Stock-exchange, Investments, Stock markets, Economic development, Tanzania
Mero, J.R (2008) The impact of stock market development economic growth in Tanzania.Master dissertation, University of Dar es Salaam, Dar es Salaam.