Stock market development and economic growth in Nepal: Evidence from ARDL cointegration and granger causality analysis

This study examines the relationship between stock market development and economic growth in Nepal using ARDL cointegration and Granger causality analysis. The ARDL bounds test reveals a long-run cointegration relationship between stock market development and economic growth, with the F-statistic exceeding the upper bound critical values at all significance levels. The long-run analysis shows that stock market index negatively affects economic growth, while market capitalization and money supply positively influence growth. The exchange rate demonstrates a significant negative effect on growth, indicating that currency depreciation hampers the macro economy. Granger causality tests further suggest unidirectional causality between stock market development and economic growth. The error correction model (ECM) reveals a rapid adjustment process, with 52.31% of disequilibrium corrected each period. These findings provide empirical insights into the relationship between stock market development and economic growth in Nepal, offering valuable implications for policymakers and investors.