The impact of the Zambian Capital Market on Economic Growth

Abstract

The aim of this study was to assess the effect of the Zambian capital market on economic growth. The study considered the extent to which the Zambian capital market has impacted the country’s gross domestic product (GDP), using the stock market index, market capitalization, and value of transactions as independent variables. A multiple regression model was used to analyze the causal relationship between the independent variables and GDP growth from 2002 to 2022. The results showed that collectively, the independent variables considered have a strong relationship with the GDP of the country. Furthermore, the study found that although the value of transactions was positively correlated with GDP, the effect was not statistically significant. Similarly, although market share index was negatively correlated with GDP, the effect was not statistically significant either. Market capitalization was positively correlated with GDP and appeared to be the most important predictor, as it had the highest standardized coefficient and was statistically significant. The policy implications for Zambia based on the regression analysis suggested a multi-faceted approach to economic development. Firstly, there is need to foster the growth of the stock market through incentives for listing, regulatory improvements, and financial education initiatives. Despite the uncertain relationship indicated by the stock market index coefficient, monitoring market trends remains important for detecting broader economic shifts. Additionally, facilitating trade and transactions through infrastructure improvements and streamlined processes can boost economic activity. Diversifying the economy beyond finance into sectors like agriculture and manufacturing is recommended for resilience. Lastly, promoting political stability, good governance, and investor confidence is crucial for sustained economic growth.