| Scope and method of study. The importance of the stock market is widely recognized. This has been emphasized by several theoretical studies. However, theoretical disagreement exists among economists about the importance and impact of the stock market on economic growth. Although some empirical studies support its positive impact on the economy, other analysts view the stock market in developing countries as "casinos" that have little positive, and potentially a large negative, impact on economic growth. Using a dynamic CGE model, this study determines the impact of developing the stock market on economic growth in Saudi Arabia. To model the stock market in the dynamic CGE, saving, investment, and development of the stock market is interdependent. Moreover, saving in Saudi Arabia is assumed to be a function of income and stock market growth. A previous study found that saving in Saudi Arabia does not depend on the interest rate.;Findings and conclusions. As expected, the result of the dynamic simulation shows that, overall, the economy does better when the stock market is included. Using real GDP, total savings, investment, output, labor income, and export variables to appraise the impact of the stock market on the growth of the economy, the results of all these variables favor including the stock market. In addition, the stock market helps to reallocate the resources available in the economy to their best use. |
