Emerging Economies and Causal Relationship of Economic Growth with Financial Market Development

  • Syeda Zinnaira Department of Business Administration, Iqra University, Karachi.
  • Syed Muhammad Salman Department of Business Administration, Iqra University, Karachi.
  • Muhammad Hasan Department of Business Administration, University of Karachi, Karachi.
Keywords: GDP, FDI, Exchange Rate, COVID-19.


The study aims to test relationship existing between equity market expansion and economic prosperity along with how this relationship is influenced and controlled by COVID-19. The COVID-19 as control variable is the uniqueness of this study. A total of twenty-three countries which are a part of emerging countries according to MSCI Index are selected out of total twenty-five countries. The research is helpful to understand contrasting hypotheses generated as supply leading hypothesis, demand leading hypothesis, Bi-directional hypothesis and no relation hypothesis with the special context of COVID-19. The connection of the two variables: economic growth and stock market development has studied in many researches but with the controlling variable of COVID-19 along with the findings are unique features of this study and contributing valuable addition to existing literature. The data is collected from World Bank Database from 2001 to 2020 (n=460). We applied correlation analysis to address the multicollinearity issue. The stationary properties along with endogeneity issue have been tested through unit root ADF – fisher chi-square test and Penal GMM techniques applied. The results suggest that negative relationship exist among economic prosperity and COVID-19 but no relationship established between equity market development and economic growth.