There could be many impacts both direct and indirect. For instance, an efficient stock market would be a win-win situation for both the investors and the enlisted companies whereby both the firms and the households can contribute to national income (explained by the aggregate expenditure equation).

please consult to finance-growth nexus!

The question is not well-posed. The answer may produce no solution {0}. If asked what is the effect of the stock market on economic growth? The answer could be both there is an effect and no effect. In countries without the stock market, is there economic growth? Yes... if so that the question of "what is the effect on the stock market on economic growth?" is a non-issue. Was there economic growth "before" the advent of the stock market? If so then the stock market could only be a contributing factors for those countries who grew when the stock markets are in place, but not a necessary condition.

RELATIONSHIP ... for those countries with stock markets, the market will show growing trend, i.e. expanding in relations with time. The economy at the same also shows a growth trend. It is safe to generalize that economies has a strong tendency to span---with only few exceptions and over a short period do we see the economy shrinks in relations with time, i.e. in failed states. Therefore, the study of the relationship between economic growth and the stock market would almost surely produce a positive relationship. Publication of this sort is to risk proving the obvious.

LINKS:

https://en.wikipedia.org/wiki/List_of_stock_exchanges_in_the_Americas

Paul Louangrath thank you very much for the reply. I await your feedback for the following: Stock exchanges are an expression of the state of a country's economy; that is, if an economy is growing then it would be expected that a stock market index will also rise and vice versa. Under this scheme, I can reformulate my initial question in the following way: To what extent does the stock market affect the growth of an economy?

Thanks.

My reply follows:

LINK BETWEEN STOCK MARKET AND ECONOMIC GROWTH. tHE STATEMENT THAT " Stock exchanges are an expression of the state of a country's economy; that is, if an economy is growing then it would be expected that a stock market index will also rise and vice versa "- - -is conclusory. Is the stock market an expression of the state of the economy? No it is not, it is a partial expression as an indicator of domestic investment climate. To be more specific, the stock market is an indicator for the health and condition of the country's "capital market." Its effect on the economy is a "spill-over" effect because one has to trade the money raised in the stock market to the use of that money in the economy and the output of that capital utilization. The distance between cause and effect becomes further and further apart. Empirically, we might find positive correlation, but that does not tell us the whole story.

IF THE STOCK MARKET IS GROWING, DOES IT MEAN THAT THE ECONOMY ALSO RISE? No, not necessary. it may be, and it also may not be. Suppose that a company raise money int he stock market and IPO at 10 dollars per share; six months later the stock is now traded at 20 dollars per share. How much effect does its have on the economy? Many people would say 15 dollars x quantity of shares is the current volume and there has been an increase in capital so there is a positive effect on economic growth. This is a Type 3 error. The firm received 10 dollars and that is the capital used to contribute to economic growth. The extra 5 dollars is what the market created as a premium for the privilege to own the stock. That money does not go to the company for investment. The rise in the stock market does not "necessary" mean that the economy is growing. It may be an indication that the health of the economy is good because people have excess money to invest in the stock market. This is the say that a rise in the stock market does not necessary lead to the significant rise in investment in the GDP equation: GDP = C + G + I + Trade.

Even a big rise in investment in this equation GDP = C + G + I + Trade, the GDP (a measure of economic growth) may not rise if there is a drop in other variables: C, G and T.

TO WHAT EXTENT DOES THE STOCK MARKET AFFECT ECONOMIC GROWTH? In socialism one speaks of the distribution of wealth; here, stock market in capitalism, one speaks of the distribution of capital; the stock market is the mechanism for this transfer. In this case, we ask: How much does the stock market contribute to investment in the GDP equation: GDP = C + G + I + Trade? There are data available, i.e. IMF economic outlook report for all variables. We can trace investment portion back to the stock market. If that could be done over man years, if could find its significance level. At that point, the answer is at hand.

QUESTIONS: How much money raised in the stock market actually goes to investment produce economic output? What is the percentage of money in the trading volume is actually excess premium paid for the privilege to own the share and does not go to the firm?

LINK:

https://www.imf.org/en/Publications/WEO/Issues/2018/09/24/world-economic-outlook-october-2018

theoretically, the stock market will reflect the economic conditions of an economy. If an economy is growing then output will be increasing and most firms should be experiencing increased profitability. This higher profit makes the company shares more attractive, because they can give bigger dividends to shareholders. A long period of economic growth will tend to benefit shares.

You can test a nonlinear function I noted in your previous question relating to Rgdp anf Fd

Dear Chuck:

I don`t understand your answer

Could you explain me?