Mobilisation of savings in Kenya : the role of Nairobi Stock Exchange
This study extends evidence of the role of emerging securities markets in development with specific reference to the NSE. The research reported here reflects on the linkage between financial markets and economic development. It identifies key methodological flaws in the existing literature and uses analysis of macro economic data on Kenya economy and NSE to demonstrate the impact of such flaws. Methodological flaws inherent in these studies have meant that they fail to establish the direction of causation between financial and economic development on hone hand, and securities markets development and economic development on the other. Premised on the conventional wisdom which holds that capital accumulation is the main constraint to development and any means to enhance it would spur development has meant that such causation relationship aroused a lot of interest among the academics, practitioners as well as policy makers in the LDCs as to the role of securities markets in development. Capital formation is crucial for economic development, and securities facilitate capital formation by mobilising and allocating savings to deserving investments. However, some believe that, securities markets are irrelevant to LDCs economies, and yet others endorse their contribution to economic development citing their contribution to the development of the Asian Pacific Rim. The key question investigated in this study is whether the Nairobi Stock Exchange has been instrumental to mobilisation of savings for investments and thus development of Kenya. Unlike earlier studies, this study is country specific. Also because of the developmental dimension of the problem both quantitative and qualitative methodological approaches are employed. The study acknowledges two largely ignored issues. The quality of data and the depth of analysis of the micro and macro structures attendant in the LDCs. The quality of data is improved by using recent statistical econometric techniques. Micro and macro structures such as economic, social-cultural, and political factors conducive for the development of securities markets are investigated. It further uses a comparative analysis of the basis for associations or causal linkage, of financial markets operations and development of savings, investment and the economy to establish how the contemporary association of market and development in development policy may be naive.