The Role of Mexico's Stock Exchange In Economic Growth

This paper discusses theoretical issues concerning the relationship between the stock market and economic development and applies five econometric models for the case of Mexico: (a) unit root tests; (b) cointegration analysis, (c) error correction model, (d) Granger causality tests; and (e) impulse-response analysis. Results suggest, for the 1968-2002 period, that the variables involved are non-stationary, are cointegrated, present a bilateral Granger-causality relationship and the response of the stock market to industrial innovations is initially positive and lasts for about six months; the response of industrial production to stock market shocks is positive and dies out after the fifth month.