Abstract

The paper examines the short and long run impact of bank and stock market developments on growth in Zimbabwe using annual data from 1988-2012, inclusive. The study uses a financially-augmented production growth function and applies the Auto Regressive Distributed Lag (ARDL) approach and the error correction mechanism to simultaneously examine the short and long run relationships. Bank and stock market developments indices are used to measure developments in the banking sector and the stock market. The results indicate the existence of a steady long run relationship between growth, bank and stock market developments. Banks are found to have a greater impact on economic growth than stock markets. Evidence of supply-leading hypothesis is found. The results suggest that economic growth is better promoted through a financially-based economic system than a stock market based one.

Key Words: Zimbabwe, financial development, bank developments, economic growth, stock market developments