B.S. Marketing and Corporate Communications S.Y. 08-09
San Beda College, Mendiola, Manila, Philippines
Stock Market made an impulse on the headlines of news and online articles these days. This captured attention because of recent occurrence in the behavior of stock markets in the world. Hence, this rationalizes that every individual should be well-informed on what’s happening on our unpredictable economy. But first, what is a stock and a stock market? A stock represents ownership in a company. Therefore when you purchase stock, you become part owner of the company. A stock is sold in the stock market, or also called equity market, wherein it is considered as an economic indicator which is responsible for the trading of company stock at an agreed price. Stock Market is one of the most important sources for companies to raise money therefore it gives companies the tendency of expanding its business dimension. Other than the stock market being important for its function and purpose for companies, is it also important for the growth of an economy (specifically to a less developed country) like Philippines? This topic is one of the most questionable and enduring debates in economics. Generally, this article will provide a conclusion for this very interesting question: “Does the development in stock market promote growth in the Philippine economy?”
There are many economic indicators that affect the performance of the stock market. These are Interest rates, foreign exchange, inflation and growth rates. Favorable growth and inflation rates as well as stabilized interest rates and foreign exchange are good news for the stock market. They usually give a kick on the market performance as these indicate sound economic status. Soaring interest rates, on the other hand, usually pushes investors from the stock market to some interest-bearing investments, as they offer better returns than stock investing. (Pioneer Junior College)
Stock Market Generalization
Stock market can be generalized in a statement. “Stock market is considered as an economic indicator which is responsible for the trading of company stock and derivatives of company stock at an agreed price. If there is a great increase in stock prices or the stock market condition is bullish, the stock owners feel wealthier and for that they respond by increasing their spending which makes them more confident in investing more on the stock market. Therefore, the capitalization of the companies in a stock market is increased and giving these companies, the tendency of expanding its business dimension. Resulting from business/company expansion, more employment would be available for the people and business productivity is also increased. Thus, employment and productivity growth carry out economic stability and economic growth as follows. Of course, sharp declines in stock prices would produce the opposite results.”
Stock Market-Economic Growth Relationship
In accordance to the relationship between the stock market and economic growth, basic aspects in determining economic growth are also discussed. GDP (Gross Domestic Product) is used as the main measurement of economic growth. A development in the stock market results to an improved economic performance of the Philippines because such positive changes (whether the rate of growth only ranges from 3-4 percent) is greatly accompanied by the increase and/or growth of the Philippine economy. For poor countries and less developed countries like Philippines, even a one-half or a 0.5 percent point in the rate of growth may mean the difference between starvation and mere hunger. While for such countries like U.S., for example, if their current real GDP is about $10.5 trillion, a 3-4% growth rate will give an additional $105 billion of output each year for the U.S. (Mc Connell, 2005)
Furthermore, the development of the stock market gave an increase in the average monthly trading value that encouraged the entry of portfolio investors in the Philippines (last 2005) which is a good sign for the economy. These factors give investors more confidence to invest in the Philippine stock market and also give chances for businesses/companies in our country to expand its business dimensions.
Investments greatly contribute to the expansion of companies and businesses. Therefore, investments are also a factor in the increase in the Four Factors of Production which yields additional output for the economy. In line with this, stock market development indirectly promotes economic growth through reducing unemployment and on the other hand increases productivity of an economy which leads to economic stability that results to economic growth.
Unemployment is one of the two major problems that arise in the business cycle and it is a good thing that through stock market development it can lessen the burden of recession of an economy. In relation to the present status of the Philippine economy, unemployment is the number one problem of our country today because obviously many businesses and even big multi-national companies had shut down and stopped operating. One reason would be the lack of investments either locally or in foreign countries. This is also connected to an investor’s confidence to invest because the economic performance of the Philippines last year was really depressing and very weak.
Moreover, productivity of investments is the channel through which stock market development enhances the growth rate in the long run. For that reason, Stock market development promotes economic growth because it helps in increasing a society’s real output and income through investment productivity which results to a great portion of the betterment and improvement of the inputs of the economy.
Due to such benefits and advantages of the stock market development to an economy, stock market development can give a big boost to the economic development of our country, thus resulting to economic growth.
No comments:
Post a Comment