Can Stock Market Boost Economic Growth?

I read many reports that said that stock market is only boosting the economy in advanced countries such as the USA, or the UK, and that developing countries are more benefited from banking industries. However, I believe that stock market could contribute to boosting the economy, as long as the market is reliable/trustworthy. Holding other variables constant, stock market adds the capital for companies to expand their business, meaning they would employ more people. The stock market is a means for people to save money to earn higher interest rate compared to conventional savings in banks. That said, the government needs to imply rules that protect the soundness of stock market.

The stock market can help the economy since it is a powerful savings means. Imagine if you have own just a share of S&P 500 (on the day I’m writing this, the price is $2,560), and you could save $200/month, in 10 years, you could get $93,000. Compare this to savings in banks, who offer 0.75% and the highest is 1% annualized percentage yield (interest rate), you would only end up with about $53,000. Assuming the US economy isn’t facing any crisis, saving only in a share of S&P 500 would double your money over the course of 10 years. Imagine if people in developing countries have an access to this or similarly strong market in their home country. If a family of middle-income could save $200/month for 10 years, they could afford top education for their kids, purchase a house, or buy 2 cars. Now, assuming low-incomer in developing countries could buy a $200 share that grows 12% annually, this person saves $10/month for 10 years, he would earn $2,700. In developing countries, he could purchase a vehicle, afford medium college, or down pay a house. This powerful savings agent provided by the sound stock market system could transform people’s lives and boost the economy.


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