Paper 2

The authors of this paper consider two key determinants of the stock market development which are institutional and macroeconomic. The institutional approach looks at institutional factors such as property rights, clearance and settlement issues, transparency and the inside information problems, taxation issues, and accounting standards. The macroeconomic approach looks at factors such as income growth, savings and investment, financial development, and inflation.

• GDP

Authors applied the formula where the total market value of all listed shares is divided by GDP and used the formula as a proxy for stock market development.

• Real Income and income growth rate

Authors consider that the real income is highly correlated with the stock market size. They said the higher the intermediation volume through stock markets the higher real income growth. High income level promotes the faster stock market development.

• Savings and investments

The authors of this paper agree with the author of the previous paper. However they said that probably the sizable capital flows had negatively affected on Latin America’s stock market development.

• Financial Intermediary Development

Both of the banking sector and MIS (Market intermediate savings) can be a substitute to each other. From the “demand for funds” point of view, the Modigliani-Miller theorem (1958) states that in a perfect market with symmetric information, the market value of all the securities issued by a firm is independent of the firm’s source of finance and consequently firms could go either to the banking sector or to the stock markets to finance their capital.

• Stock market liquidity

Liquidity is usually defined as the ease and speed at which agents can buy and sell securities. It is one of the most important functions the stock markets provide (Miller, 1991). They agree with Charles’ paper that the liquidity is highly important for the development of the stock market.

Paper 3

The researchers have done the research on previous performance of the economics and stock market itself in the capital of Kenya, Nairobi. They provided the graphics for each of the determinants such as Banking Sector Development, Income per Capita, Domestic Savings, Stock Market Liquidity, Macroeconomic stability, Foreign Capital Investment and Institutional quality. The graphics and the table are provided in the appendices section of this assignment.

Paper 4

• Banking Sector

The authors of this paper agree with the authors of the previous papers and say that it is noteworthy that Rousseau and Xiao (2007) in their study of China found that banking sector development was central to the Chinese success but however could not establish any significant relationship for the case of stock market development.

• Savings

The authors stated the statement of Tsuru (2000) who explained the finance‐growth link by arguing that financial development can promote economic growth via its positive impact on capital productivity or the efficiency of financial systems in converting financial resources into real investment. However, its effect on the saving rate is ambiguous and could affect the growth rate negatively. ‘In net terms, the impact on welfare is likely to be positive, since increased efficiency of investment in the long term can offset any reduction in the propensity to save’ Tsuru (2000). Stock markets provide an alternative channel for savings mobilization and better resource allocation (N’Zué 2006). They enable savings mobilization for financing “immense works” (Bagehot 1906, Hicks (1969), Greenwood and Smith 1996). More efficiently mobilized savings cause capital accumulation, which firms tap to finance large projects via equity issues. This, undoubtedly, spurs economic growth (Levine and Zervos 1998a, 1998b; Adjasi and Biekpe 2006).

• Liquidity

Focusing on liquidity, Bencivenga, et. al. (1996) and Levine (1991) argue that stock market liquidity plays a key role in economic growth. Without the liquidity in the stock market, many profitable long term investments would not be a profitable. The more liquid the market, the more it ease the savers to sell their shares, therefore the companies raise the capital on favorable terms. Liquidity has also been argued to increase investor incentive to acquire information on firms and improve corporate governance (Kyle, 1984; Holmstrom and Tirole, 1993), thereby facilitating growth.