An Empirical Analysis of Stock Market Development and Economic Growth: The Case of Macedonia

This paper has two goals. The first goal is to investigate the influence of stock market development on economic growth for a group of 14 transition economies from the Central and South-East European (CSEE) region in the period 2002-2012, while the second is to analyze the main characteristics and specificities of the stock market in the Republic of Macedonia. To fulfil the first goal, we apply panel regression models (fixed and random effects) and a dynamic panel model (Generalized Method of Moments – GMM), while we use a single country approach and comparative analysis to examine the main characteristics of the Macedonian stock market. The estimated results indicate that stock market development is positive and significantly correlated with economic growth. Additionally, the comparative analysis of the stock market in the Republic of Macedonia suggests that the Macedonian stock market is still underdeveloped and faces a number of challenges before it can enter a new phase of development after the negative impact of the global financial crisis. Those challenges include capital market regional integration and the harmonization of legal and institutional frameworks such as bankruptcy procedures, accounting and reporting standards, public sector regulatory bodies, corporate governance and a liberalized trade regime.