Economic growth has been a topic of particular interest for the economists for as long as the economics itself. In the new economic era that the world is experiencing, capital has a higher position in the economic growth. Financial markets play a key role in mobilizing and directing funds in the economy toward manufacturing and industrial sectors and thus in improving economic growth. Currently, the funds needed by financial firms in many countries are provided by capital markets. It is necessary to propel the domestic savings and foreign assets towards highly productive activities. This is made possible by an efficient stock market functioning as the main institution for the joint-stock companies cooperation. There is a possibility that in less developed countries, the development of the financial sector causes economic growth. Therefore, there is always an important question facing researchers and policy-makers: Is there any relationship between economic growth and financial development? Do more developed financial markets cause a higher economic growth?
The objective of this study is to determine the role of Tehran Stock Exchange in the national income of Iran during 1384-1394 (21th of March 2005-21th of March 2015), considering that a market consisting of 335 companies play a larger role in the economic growth of the country by collecting the equivalent of 3 thousand billion Rials (during the selected time period) and some suggestions to make this financial market more efficient.
In this study, the gross domestic product has been given as an indicator of the economic growth and the stock market value as the main indicator of stock exchange market.
For a more comprehensive view, table below shows the GDP of Iran and the average stock market value for 10 years from 1384 (21th of March 2005) until 1394 (21th of March 2015).
As it is shown in the table, the stock market value has started to increase sharply from 1389 due to the privatization by the government of Iran which shows the increasing role of Iran’s stock exchange in the economy.
In order to reach a reliable result, the quarterly data for GDP and stock market value of Iran has been collected for each year during mentioned period of time and has been analyzed in Autoregressive Distributed Lag (ARDL) method.
Based on the results of the given data analysis, it has been shown that there is a meaningful relation between the GDP growth as an indicator of the economic growth and the growth of stock market value.
The results emphasize the role of Iran’s capital market in promoting the economic growth of the country. Therefore, achieving higher economic growth requires an efficient, complementary and powerful financial market. These following suggestions can be helpful in promoting Iran’s capital market:
The first and most important step in connection with Tehran Stock Exchange is the revision of the regulations and preparation of appropriate legislation for capital market operations according to the economic system and current social conditions based on current world standards. For example, the long-term stop of symbols is one of the issues emphasized by the experts in this field. That is why there is a need to revise the mechanism to stop symbols. The investment injected to the capital market and companies in this market by businesses and individuals looks for quick liquidity. Not only can this be achieved by stopping symbols but also investors will be hesitated about entering to the market. Authorities should be aware that in every market, supply and demand determine prices. So, stopping the corporate marks for various reasons not only will increase transparency but cause the outflow of capital from the market.
The development and use of new financing tools such as Sukuk can be a means to pay off debt and government obligations. They also can be used at different times to cover fluctuations in government`s revenue.
Identifying ways to invest in the stock market and introducing the Stock Exchange to the public through spreading the exchange culture and necessary educational and advertisement activities are the other necessities.
Creating a favorable environment for the participation of foreign investors in the stock market to secure and expand the market and also to provide a part of the needed foreign exchange resources and to improve the balance of payments is highly recommended. This is achieved only by creating a transparent financial market. Due to the development of virtual networks and fast data transfer and the ultimate misuse of information, the shareholders are unfortunately considered as the last element of this cycle!