Is Solow’s Paradox Absent in World Leading Capital Markets? Econometric Evidence

Mehmood, Bilal
Shafique, Anam
Rafaqat, Rabia
Publication date: 
JEL codes: 
C23 - Models with Panel Data; Longitudinal Data; Spatial Time Series, G12 - Asset Pricing; Trading volume; Bond Interest Rates, G15 - International Financial Markets.
Information technology has transformed the traditional economy into digital economy during this century. Yet there has been debate of Solow’s Paradox in theoretical and empirical literature. Considering its importance, this research examines its impact on Capital Market Activity by using 47 countries of world’s leading capital markets. Market capitalization of listed companies (% of GDP) and Stock traded turnover ratio (%) have been considered as proxies for capital market activity while Information and Communication Technology expenditure is used as development indicators for ICT. Recently development Pooled Mean Group (PMG) approach to cointegration is employed on data of 47 countries capital markets for time span 1990-2012. PMG being a heterogeneous panel estimation technique allows the slope and short run parameters to vary across the countries. Results show the presence of long run relationship between ICT development and capital market activity. Recommendations are made on the basis of empirical findings.
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