This study explores the link between stock market development and economic growth on a global scale. Analysing panel data from 36 countries over two decades (2003-2022), we investigate this relationship through a fully modified ordinary least squares (OLS) and panel vector error correction model to capture both short- and long-term dynamics. The empirical findings suggest a two-way influence between economic output and the stock market capitalisation in the short term, but only for high-income countries. In contrast, low- and middle-income countries experience a short-term effect where stock market capitalisation benefits economic growth, but not vice versa. The long-term analysis suggests a unidirectional positive influence of stock market capitalisation on economic growth, although this effect appears weaker in low- and middle-income countries. Policymakers, particularly in low- and middle income countries, should thus focus on strengthening their stock markets to harness these growth benefits and support sustainable economic development.
