Do Stock Markets Promote Economic Growth?

One of the most enduring debates in economics is whether financial development causes economic growth or whether it is a consequence of increased economic activity. Little research into this question, however, has used a true causality framework. This paper fills this lacuna by using Granger-causality tests and finds little evidence of a causal relationship going from stock market development to economic growth. We do find evidence that stock market development can cause currency appreciation, which may confound studies that use dollar denominated measures of economic growth.