Theses and Dissertations - UTB/UTPA

Date of Award


Document Type


Degree Name

Doctor of Philosophy (PhD)



First Advisor

Dr. Andre V. Mollick

Second Advisor

Dr. Michael A. Abebe

Third Advisor

Dr. Damian S. Damianov


The debate on whether financial development and stock market help growth is ongoing. In the context of Africa where there exists a strong need and potential for growth, it is important to revisit the topic in order to address the problem of economic underdevelopment. In this dissertation, we focus on seventeen African countries with two main objectives: First, to investigate the relationship between financial and trade openness, and economic growth. Second, we investigate the association of African real stock index returns with financial and trade openness. For all analysis, we use Fixed Effect Models (FEM) and System Generalized Method of Moments (SGMM). The fixed effect model results indicate a significant positive relationship between economic growth and stock market capitalization. We also find a significant relationship between economic growth and financial and trade openness, though weak. On the other hand, system GMM results indicate the financial openness measure GEQY is consistently positive and significantly associated with economic growth. The stock returns and financial and trade openness analysis fixed effect model results indicate there is a significant positive relationship between stock market returns and real GDP growth. System GMM results are different from the fixed effect model. Importantly, in the system GMM model there is some evidence, although not strong, that real stock returns is negatively related to trade and financial openness. Trade openness measure (XM Open) and financial openness measure (GEQY) are negatively and significantly related to stock returns. Similar to the fixed effect models, real GDP growth is largely positively related with stock market returns, supporting the direct relation between stock return and economic growth.

In almost all specifications, the financial openness measure GEQY is positively associated with economic growth and negatively related with stock returns, indicating the importance of the financial openness measure GEQY (Portfolio of stocks and FDI) for African economic growth. An important implication of this dissertation is that policy makers of these African countries could stimulate economic growth and decrease cost of capital by opening their equity markets to international investors and encouraging Foreign Direct Investment (FDI).


Copyright 2012 Tibebe Abebe Assefa. All Rights Reserved.

Granting Institution

University of Texas-Pan American