Stock Market Development, Economic Growth and Environmental Sustainability in South Africa: A Cointegration and Time–Frequency Analysis

The development of stock markets can influence both economic growth and environmental sustainability, yet whether financial market expansion can achieve these objectives simultaneously remains unclear in emerging economies. This study examines the effects of stock market development (SMD) on economic growth and carbon emissions in South Africa over 1975–2022 using autoregressive distributed lag (ARDL) models and wavelet coherence analysis. The ARDL estimates reveal predominantly negative or insignificant effects on economic growth, while nonlinear specifications indicate that positive growth effects emerge at higher levels of market development. Similarly, market capitalization and trading activity increasingly exhibit positive associations with carbon emissions after 1994, suggesting that financial deepening can reinforce emission-intensive economic activity. In contrast, greater market breadth is associated with lower emissions. Wavelet coherence further demonstrates substantial time- and frequency-dependent relationships, with post-1994 financial integration marking stronger stock market–growth and stock market–emission linkages. Short-run emission reductions during major crises appear temporary, reflecting contractions in economic and market activity. These findings suggest that stock market expansion alone cannot deliver sustainable growth. Policy should therefore ‘green’ financial development by directing capital toward renewable energy, clean technologies, and low-carbon firms while strengthening ESG disclosure, environmental compliance, and climate-related financial regulation.