Stock Market Development and Economic Growth Nexus: Evidence from the Fragile Five Countries

In emerging markets, stock markets play a crucial role in supporting long-term growth. This study explores the causal relationship between stock market development and economic growth in the Fragile Five countries—Brazil, India, Indonesia, South Africa, and Turkey—covering the period from 2001 to 2024. To ensure robust findings, it uses second-generation panel cointegration and causality tests that account for cross-sectional dependence and structural heterogeneity. The model includes three parameters representing financial depth, liquidity, and efficiency. Results indicate significant long-term cointegration, suggesting causality from stock market development to economic growth, supporting the supply-led growth hypothesis. This aligns with recent evidence highlighting the importance of institutional quality and sectoral interconnectedness in emerging markets. Furthermore, Panel DOLS and FMOLS analyses reveal that stock market capitalization has a notable positive effect on domestic productivity. Overall, these findings underscore that stock market parameters are vital for accurate economic forecasting and that strengthening capital markets is essential for sustainable growth in the Fragile Five.