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VI. A. Macroeconomic Stability: WHAT DETERMINES STOCK MARKET DEVELOPMENT IN AFRICA?



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References: Stock Market Development in Sub-Saharan Africa - By International Monetary Fund

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The previous section has provided enough evidence to make a convincing case that stock
market development at least creates the enabling environment for a successful economic
growth. The policy question, therefore, is what determines stock market development? The
literature suggests that sound macroeconomic environment, well developed banking sector,
transparent and accountable institutions, and shareholder protection are necessary
preconditions for the efficient functioning of stock markets in Africa.
A. Macroeconomic Stability
A stable macroeconomic environment is crucial for the development of the stock market.
Macroeconomic volatility worsens the problem of informational asymmetries and becomes a
source of vulnerability to the financial system. Low and predictable rates of inflation are
more likely to contribute to stock market development and economic growth.7 Both domestic
and foreign investors will be unwilling to invest in the stock market where there are
expectations of high inflation. Garcia and Liu (1999) finds that sound macroeconomic
environments and sufficiently high income levels—GDP per capita, domestic savings, and
domestic investments—are important determinants of stock market development in emerging
markets.

IMF Working Paper
African Department
Stock Market Development in Sub-Saharan Africa: Critical Issues and Challenges
Prepared by Charles Amo Yartey and Charles Komla Adjasi
August 2007


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References: Stock Market Development in Sub-Saharan Africa - By International Monetary Fund

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The IMF is an international organization of 185 member countries. It was established to promote international monetary cooperation, exchange stability, and orderly exchange arrangements; to foster economic growth and high levels of employment; and to provide temporary financial assistance to countries to help ease balance of payments adjustment. Since the IMF was established its purposes have remained unchanged but its operations—which involve surveillance, financial assistance, and technical assistance—have developed to meet the changing needs of its member countries in an evolving world economy.
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