The global increased of market integration for the past few decades has been staggering. Although numerous research have shown market integration as one of the main drivers of economic growth, existing literature has yet to find a conclusive result. Hence, this study examines the impact of stock market integration on economic growth in 32 countries of Asia and Europe regions. The study utilizes the Kalman Filter method to generate the stock market integration index and heterogenous panel models to investigate its relationship towards economic growth. Overall, the result shows that stock market integration has positive impact on economic growth in Asia and Europe high-income countries. However, the impact is not significant in Asia Middle-Income Countries, which suggest the insufficient absorptive capacities in these countries to benefit from the market integration. Such findings call for more appropriate market liberalization policies that fits the economic environment and geographical location of these countries.
Topics
Kalman filter
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