Does Stock Market Development Promote Economic Growth in Indonesia
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Institusion
Universitas Padjadjaran
Author
Pranata, Nika
Subject
Datestamp
2021-11-23 00:00:00
Abstract :
The stock market has become an alternative source of funding for Indonesian firms since the 1980s. This study investigates whether or not stock market development promotes economic growth in Indonesia by using quarterly data from Q1 2008 to Q1 2014. Dynamic panel data using bias-corrected least squares dummy variables (LSDVC) is used to find the evidence of the impact of stock market development on economic growth, whereas non dynamic panel data with entity and time fixed effect is used to investigate only the variation effect of each sectors of stock market on sectors of GDP. In addition, sectors of the stock market are used as the dummy variable in non-dynamic panel model. The result shows that market capitalization and turnover ratio (reflecting liquidity) have positive contribution to economic growth. However, stock market index do not have a significant impact on economic growth. As policy recommendations, it would be better for authorized institutions, such as the Indonesia Stock Exchange (IDX), the Ministry of Finance (MOF) and the Indonesia Financial Services Authority (OJK) to do spesific actions to increase encourage more companies to be listed on the Indonesia Stock Exchange in order to increase the market capitalization. Furthermore, in order to improve the liquidity, it is better for them to promote specific actions to increase the number of investors especially individual investors.
The stock market has become an alternative source of funding for Indonesian firms since the 1980s. This study investigates whether or not stock market development promotes economic growth in Indonesia by using quarterly data from Q1 2008 to Q1 2014. Dynamic panel data using bias-corrected least squares dummy variables (LSDVC) is used to find the evidence of the impact of stock market development on economic growth, whereas non dynamic panel data with entity and time fixed effect is used to investigate only the variation effect of each sectors of stock market on sectors of GDP. In addition, sectors of the stock market are used as the dummy variable in non-dynamic panel model. The result shows that market capitalization and turnover ratio (reflecting liquidity) have positive contribution to economic growth. However, stock market index do not have a significant impact on economic growth. As policy recommendations, it would be better for authorized institutions, such as the Indonesia Stock Exchange (IDX), the Ministry of Finance (MOF) and the Indonesia Financial Services Authority (OJK) to do spesific actions to increase encourage more companies to be listed on the Indonesia Stock Exchange in order to increase the market capitalization. Furthermore, in order to improve the liquidity, it is better for them to promote specific actions to increase the number of investors especially individual investors.
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