Stock market development and economic growth in nepal

Abstract

This study explores the impact of stock market development and macroeconomic variables on Nepal’s economic growth with three main objectives: to assess situation of key financial indicators, to examine their relationships with GDP growth and to evaluate their effects on economic performance. A descriptive and causal-comparative design have been used based on secondary data from 2009/10 to 2023/24 selected through purposive sampling from sources such as Nepal Rastra Bank, NEPSE, CBS, Ministry of Finance, the World Bank and IMF. Independent variables have been included Market Capitalization, Trading Turnover, NEPSE Index, Gross Capital Formation and Gross National Savings while GDP growth is the dependent variable. Analysis was conducted in SPSS using descriptive and Inferential statistics including correlation and regression tools. Descriptive results have showed high variability in Market Capitalization, Turnover, and NEPSE Index, while Capital Formation and Savings were stable. Correlation analysis has found significant strong and moderate positive links between GDP growth with Capital Formation and Savings, respectively. Market Capitalization showed a significant moderate negative correlation, while Turnover and NEPSE Index have very weak and insignificant relationship with GDP growth. Regression analysis has confirmed Market Capitalization has a significant negative effect and Gross National Savings had a significant positive effect on GDP growth. NEPSE Index had a weak, slightly positive effect and Turnover and Capital Formation have insignificant effect on GDP growth. The model’s explanatory power was high (R² = 0.826) with significant ANOVA (F = 8.574, p = 0.003), confirming the joint influence of selected variables. In conclusion, macroeconomic factors like savings positively influence growth, while stock market development indicators have not played a supportive role, suggesting the need for reforms to enhance the market’s contribution to economic development. Keywords: GDP Growth, Market Capitalization, Trading Turnover, NEPSE Index, Gross Capital Formation, Gross National Savings.