Stock Market Development and Economic Growth in Nepal

Abstract

This study aimed to examine the stock market development and economic growth in Nepal. The research an analyzed of stock market factors like; stock market capitalization (MC), trading turnover (TT), number of listed securities (NOLS) and market index (MI) against the real gross domestic product (RGDP) which was used as a proxy for economic growth. Secondary data were used for the study collected from the Economic Bulletin of Nepal Rastra Bank and Economic Survey of the Ministry of Finance for 24 years from 1994/95 – 2017/18(Mid July). Data were analyzed by using appropriate the descriptive research design was used. The regression models were used to test significance of stock market performance and macroeconomic variable i.e. Real GDP. From the results, it was revealed that there was a positive relationship between stock market indicators and economic growth in Nepal. Thus, the study lends support both to the financial intermediation literature as well as to the traditional growth literature. This study concludes that capital market development affects the growth of the financial sector. This study also revealed that market capitalization, change in stock market price and trading volume affect economic growth. The NEPSE plays an important role in the economic growth of Nepal and the study therefore recommends that the government needs to do much to attract and encourage active participation of stock markets sector. The study recommends that The Securities Board of Nepal has the responsibility of regulating the entire securities market in Nepal. To make the Board effective, the number of staff should be adequate and properly trained in all aspects of securities market. It should bring new and emerging stock market regulatory regimes to match international standards. Government should create favorable environment for the foreign investor. Market makers and investment bankers should be encouraged to participate in the stock market. The stability on the Nepalese political and economic system enhanced the investment environment for public sector, private sector and Multinational companies to invest in Nepal. This will definitely increase the market capitalization and in turn it increases the Real GDP. Timely and regular discourse of the information should be made necessary for the participating firms. Provisions should be made so as to necessitate the organizations to disclose their financial data at least quarterly.