Stock Market Development and Economic Growth in Uganda : A Time Series Analysis for the Period (1998Q1-2012Q4)

This research aims at examining the long run causal relationship between stock market development and economic growth in the context of Uganda, on the ground that Uganda Securities Exchange is still nascent and its contribution is not yet evident in the economy, yet many economist and researchers have accredited Stock markets for their important role in economic growth. Using quarterly data from 1998Q1 to 2012Q4, the study employed one bank (money supply) and three measures of stock market development namely Market Capitalization ratio to proxy market size, and total value of shares traded and Turnover ratio to proxy market liquidity, controlling for other factors that affect economic growth. To test for whether there exists a relationship between variables, the study applies Multivariate vector autoregressive models (VAR) and Vector Error Correction Models (VECM) to capture the short and long run dynamics of the relationship. The Johansen test of cointergration reveal that variables are cointergrated and the VECM reveals existence of long running relationship. The granger causality test results however were inconclusive showing no causality between stock market and growth in Uganda. Other factors may have contributed to the growth of the economy shown from the long running relationship between the variables.