Abstract

This paper presents an analysis of the stock market development effects on economic growth in Kenya, using the gross domestic product and the two key measures of stock market – capitalization and trade volume. Empirical results indicate that variables satisfied apriori expectations, are statistically significant, and positively correlated with feed-back effects. Capitalization, trade volume and economic growth are highly positively correlated in Kenya, with capitalization and trade volume jointly explaining 91% of the variations in the economic growth, over the period under study. Further, the study found that a 1% increase in both trade volume and capitalization causes 0.025% and 0.115% increase in gross domestic product respectively. Thus, empirical evidence shows that stock market development (measured by trade volume and/or capitalization) impacts positively on the economic growth in Kenya.

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