THE IMPACT OF STOCK MARKET ON ECONOMIC GROWTH IN NEPAL

Abstract

The objective of this study was to analyze the progress of the stock market and its impact on the economic growth of Nepal. The study examined various stock market indicators, including stock market capitalization (MC), trading turnover (TT), number of listed securities (NOLS), and NEPSE index (NI), in relation to the real gross domestic product (RGDP), which served as a proxy for measuring economic growth. The study utilized secondary data obtained from the Economic Bulletin of Nepal Rastra Bank and the Economic Survey of the Ministry of Finance over 22 years, from 2000/01 to 2021/22 (Mid-July). A suitable descriptive research design was employed to analyze the data. Regression models were employed to assess the relevance of stock market performance and macroeconomic factors, such as Real GDP. The results indicated a positive correlation between stock market indicators and economic growth in Nepal. Therefore, the analysis provides evidence that supports both the financial intermediation literature and the traditional growth literature. The study's findings indicate that the development of the capital market impacts the expansion of the financial industry. Additionally, this study found that economic growth is influenced by market capitalization, fluctuations in stock market price, and trading volume. The NEPSE (Nepal Stock Exchange) plays a crucial role in driving economic growth in Nepal. Therefore, the study suggests that the government should take significant measures to attract and promote active involvement in the stock market sector. The study suggests that the Securities Board of Nepal is responsible for governing and supervising the whole securities industry in Nepal. To ensure the effectiveness of the Board, it is crucial to have a sufficient number of professionals who are well-trained in all areas of the securities market. It should adopt new and emerging stock market regulatory frameworks that align with international standards. The greater stability of the Nepalese political and economic system has created a favorable investment climate for public sector, private sector, and multinational corporations to invest in Nepal. This will undoubtedly enhance the market capitalization, hence leading to an increase in the Real GDP. Keywords: Stock Market Indicators, Economic Growth, Nepal Stock Exchange (NEPSE), Macroeconomic Factors, Capital Market Development