Capital Accumulation in Less Developed Countries: Does Stock Market Matter?

Our panel data analysis (1988-2002) of a sample of 31 less developed countries (LDCs) shows that the stock market capitalization as a percentage of GDP- an important indicator of stock market development- has no relationship with the growth rates of gross fixed capital formation (GGKF). Our time series analysis (1976-2002) of 16 LDCs shows that in 11 cases there is no meaningful relationship between the stock market turnover ratio and the growth of capital accumulation (GGKF). For 5 LDCs (belonging to the so-called French-origin civil law category) with low shareholder protection we get a positive long-term relationship.