The Effect of Macroeconomic and Financial Related Variables on Stock Market Capitalization of Global Growth Generator Countries

(ProQuest: ... denotes formulae omitted.)1. INTRODUCTIONIn the current decade, several national governments and financial institutions are examining the development and growth of economic and financial stability of Latin America, Europe and Asian countries. The Citi Investment Research and Analysis, a division of Citi Group Global Market Inc., published a report entitled, "Global Growth Generators or 3G countries on 21st February 2011. In the 3G, countries were identified on basis of economic growth potential and portfolio investment opportunities. The research division of Citi Group identified eleven countries, as growth potential economies. Willem Buiter and Ebrahim Rahbari (2011), the author of the report, states that BRICS countries play a vital role but in the present scenario, there is a need to examine the potential of diversified markets. The study identified emerging markets, based on domestic saving and investments, health, demographic prospects, education, trade openness, quality of institutions and policies. The Citi group report used the variables, based on the criteria like Health, Demographic prospects, Education, Trade openness, Policies, Quality of institutions, domestic saving and investments like income per capita growth, to develop a new index for identifying Global Growth Generator countries or 3G countries. The Global Growth Generator countries are Bangladesh, China, Egypt, India, Iraq, Indonesia, Mongolia, Nigeria, Philippines, Sri Lanka and Vietnam. According to the report, Vietnam has recorded high growth index among the eleven 3G countries. This country holds high potential growth and profitable investment opportunities and China is placed the second, with 0.81, followed by India at 0.71. The eleven 3G countries identified are developing economies at present but they have a large and young population and are at the early stage of development. Buiter and Rahbari (2011) stated in their study, the clear path for growth i.e. start poor, start young, open up, don't be unlucky and don't burst. They suggested that once a country starts with poor country status and with almost unlimited young labor forces, they must create some form of reform by opening up their markets and invest in human and physical capital. The present decade, HSBC Trade Confidence Index as well as HSBC Trade Forecast revealed Egypt, India, Indonesia and Vietnam recorded outstanding growth in trade volume and expected to record growth rate at least 7.3 per cent in a year through 2025. The details of global growth generators (3G) countries during the period 2010-2050 index score are provided in Table-1.Buiter and Ebrahim (2011) mostly concentrated on the role of banking industry even though they did not ignore stock market in the role of economic development.1.1. Stock Market, Economic Growth and Determinant of Stock Market DevelopmentAcademicians are divided in their opinion about the role of stock market in the modern economy. While some of the literatures support that stock market growth does not lead to economic growth, but most of the literatures have found a positive relationship between stock market developments and economic growth both in short term as well as in long run. Over the last two decades, much focus has been on the impact of financial development i.e. capital market, banking industry growth on economic development.The fluctuations of macroeconomic variables influence the economy troubling the trade smoothness. Forecasting the future movements and behaviour of macroeconomic variables can be helpful to predict stock returns (Serife Ozlen and Ugur). This research study borrowed the concept of 3G countries from the Citi group report and studied the impact of macroeconomic and financial related variables on the stock market in 3G countries.2. REVIEW OF THE LITERATUREMd. Al-Mamun, (2013), in his paper, examined the effect of macroeconomic and market related variables on the growth of stock market capitalization in 3G or Global Growth Generator countries. …