Abstract

Understanding the dynamics between financial development and economic growth has long been a cornerstone of economic research and policy discourse. This paper builds on the econometric growth model by Masoud and Hardaker (2012), following the endogenous growth model of Lucas (1988), Romer (1986), Rebelo (1991), Barro (1991), and Pagano (1993), to analyze the impact of financial development on economic growth in 13 developing countries from 2000 to 2019. Utilizing a two-way fixed effects panel regression, this study examines the impact of stock market development, the banking sector, and the ratio of broad money supply to gross domestic product on economic growth. The findings show that while development in financial depth and the banking sector has no significant effect, stock market liquidity relative to the size of the economy, measured by the value traded as a percentage of gross domestic product, establishes a robust and positive impact on economic growth. These results underscore the importance of liquid and efficient stock markets in fostering economic development across emerging economies.