Effects of Securities Market Development on Economic Growth in Kenya

Abstract

This research looks at how the emergence of the securities market has affected Kenya's economic expansion, highlighting the function of financial markets in promoting investment, resource mobilization, and maintaining economic stability. While global evidence suggests that developed securities markets promote growth through efficient capital allocation (Levine & Zervos, 1998), local results have been mixed. By analyzing market capitalization as an indicator of market growth and its relationship to GDP growth between 2010 and 2020, this study elucidates this relationship while incorporating macroeconomic factors like interest and inflation rates, as well as employment to provide policymakers with information aimed at boosting the economy. It uses secondary data from the NSE, World Bank, KNBS and CBK as part of a descriptive study design. Anchored in the Efficient Markets Hypothesis (EMH), Financial Intermediation Theory, and Endogenous Growth Theory, the study suggests that efficient securities markets optimize capital allocation and spur innovation, fostering long-term growth. Multiple linear regression in SPSS version 28 examined relationships between GDP growth and variables like market capitalization, interest rates, inflation, and employment. The findings highlight the securities market's complex role in economic performance by demonstrating the complex link between market capitalization and GDP growth. Positive correlations were observed, though indicator variations underscore growth’s multi-dimensional nature. The study concludes that securities market development, alongside stable macroeconomic policies, can enhance growth within a framework of broader determinants. Recommendations include enhancing market transparency, expanding financial offerings, and maintaining macroeconomic stability to support investor confidence and resilience.