COMCEC Financial Outlook 2018
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Figure 3: Stock Market Capitalization to GDP (%)
Source: Authors’ calculation from the World Bank Database
Regarding this indicator, the low-income group of OIC member countries does not have data;
therefore, the analysis will be conducted on the rest of the country groups. The world average
recorded as 60.6% in 2016. The OIC average increased continuously over the period and closed
to the world averages recording as 44.2% in 2016. The rates for the high-income group of OIC
countries have been more than the world averages as the stock markets in these countries have
shown significant improvements during recent years which is highly correlated to the
development of stock exchange markets as well as economic growth.
A well-established, stable and functioning stock market will ease accumulation and attraction of
long-term capital for sustainable economic growth and development. The stock market has a
key role in financial markets and smooth functioning stock market is accepted as a substantial
condition for financial sector evolution. This is also considered a pre-requisite to the sustainable
economic growth and development that makes the national economy to enhance more foreign
investors. A well-functioning stock market plays a vital role in encouraging liquidity, mobilizing
and assembling savings, producing information for prospective investments and capital
allocation. Therefore, it is accepted that the existence of an active and stable stock market can
stimulate the rate of economic growth 13.
As a result, as also highlighted in the literature, macroeconomic and institutional factors play an
important role in stock market development. The macroeconomic factors such as real income,
developments in the banking sector, interest rate, private capital flows, inflation, and exchange
rates have effects on stock market development. As for the institutional factors, legal
environment, regulations, legal protection of investors, corporate governance, financial
liberalization, and trade openness, etc. in an economy can affect the development of the stock
market. As the stock markets consist of various financial instruments such as securities, public
and corporate bonds, future and option contracts, a stable and well-functioning stock market
helps to attract foreign investors. The findings and analysis of these two indicators, stock market
13 Azam, M., Haseeb, M., Samsi, A.B., Raji, J., “Stock Market Development and Economic Growth: Evidences from Asia-4
Countries”, International Journal of Economics and Financial Issues, Vol 6, Issue 3, 2016
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OIC-LMIG OIC-UMIG OIC-HIG OIC-Average World Average
2012 2013 2014 2015 2016