Determinants of economic growth in Hong Kong: The role of stock market development

Figures & data

Figure 1. Evolution of the stock market and economic performance in Hong Kong during 1986Q2 to 2015Q4.

Sources: IFS (2016) and HKEx (2016c)

Table 1. Descriptive statistics of the variables

Statistic	lnY	lnHC	lnPC	lnSMD_PCA	lnSMD_MR	lnINF	lnGOV
Mean	12.243	4.394	3.205	2.244	0.000	0.493	2.353
Median	12.185	4.362	3.192	2.106	−0.325	0.639	2.364
Maximum	12.636	4.660	3.570	3.687	2.122	1.593	2.581
Minimum	11.718	4.298	2.945	0.867	−0.766	−3.119	2.157
Std. Dev.	0.250	0.083	0.114	0.861	0.696	0.825	0.110
Skewness	0.002	1.689	0.833	0.108	0.933	−1.224	−0.045
Kurtosis	1.989	5.333	3.772	1.637	2.884	5.360	2.057
Jarque-Bera	5.068	83.548	16.706	9.437	17.340	57.342	4.447
P-value	0.079	0.000	0.000	0.009	0.000	0.000	0.108
Sum	1456.976	522.860	381.396	267.040	0.000	58.711	280.015
Sum Sq. Dev.	7.373	0.817	1.543	87.487	57.179	80.339	1.432
Observations	119	119	119	119	119	119	119

Std. Dev. and Sum Sq. Dev. denote, respectively, standard deviation and sum of squared deviations.

Table 2. Tests for unit roots of the variables

	Perron Statistic (Lag)				Zivot-Andrews Statistic (Lag)
Variables	Drift	Break Date	Drift and Trend	Break Date	Drift	Break Date	Drift and Trend	Break Date
lnY	−4.030(4)	1997Q4	−3.968(4)	1997Q4	−4.009(4)	1998Q1	−3.951(4)	1998Q1
∆lnY	−13.033(0)***	1998Q1	−13.225(0)***	1998Q1	−4.932(3)*	2003Q1	−5.106(3)**	1999Q1
lnHC	−3.166(0)	2007Q4	−4.400(0)	2011Q2	−3.174(0)	2008Q1	−3.715(0)	2011Q2
∆lnHC	−10.786(0)***	2002Q4	−11.558(0)***	2011Q1	−10.831(0)***	2003Q1	−11.333(0)***	2011Q1
lnPC	−2.878(4)	1993Q4	−4.377(4)	1998Q2	−2.988(4)	1994Q1	−4.316(4)	1998Q4
∆lnPC	−5.132(4)*	1998Q2	−6.630(6)**	1998Q2	−5.153(4)**	1998Q3	−5.147(4)**	1998Q3
lnSMD_PCA	−4.290(0)	2004Q3	−5.101(0)	2005Q4	−4.309(0)	2004Q4	−5.126(0)**	2006Q1
∆lnSMD_PCA	−11.932(0)***	2008Q4	−12.001(0)***	2008Q4	−9.299(1)***	2008Q1	−9.260(1)***	2008Q1
lnSMD_MR	−5.392(0)**	2005Q4	−5.798(0)**	2006Q3	−5.434(0)***	2006Q1	−5.907(0)***	2006Q4
∆lnSMD_MR	NA	NA	NA	NA	NA	NA	NA	NA
lnINF	−6.809(0)***	2009Q2	−5.785(0)**	2009Q2	−5.370(0)***	2009Q3	−5.133(0)**	2003Q4
∆lnINF	NA	NA	NA	NA	NA	NA	NA	NA
lnGOV	−4.874(4)	2004Q1	−4.853(4)	2004Q1	−4.936(4)**	2004Q2	−4.870(4)*	2004Q2
∆lnGOV	−5.273(3)**	2002Q2	−5.533(3)*	2004Q1	NA	NA	NA	NA

(i) *, **, and *** denote significance at 10%, 5%, and 1%, respectively.

(ii) ∆ is a first difference operator.

(iii) NA denotes not applicable.

Table 3. Results of cointegration test

Dependent Variable	Function	F-statistic	Cointegration Status
lnY	F(lnY | lnHC, lnPC, lnSMD_PCA, lnINF, lnGOV)	4.205**	Cointegrated
Critical Value Bounds for 5 independent variables
Significance	Lower Bound Upper Bound
10%	2.26	3.35
5%	2.62	3.79
1%	3.41	4.68

** denotes significance at 5%. The critical value bounds correspond to the asymptotic critical values for unrestricted intercept and no trend in Table CI(iii) p. 300 of Pesaran et al. (2001). lnSMD_PCA is the stock market development indicator calculated using the PCA method.

Table 4. Short-run estimates for ARDL(1, 0, 1, 0, 0, 1)

Dependent Variable: lnY	Coefficient	Standard Error	t-statistic
∆lnHC	0.024	0.070	0.348
∆lnPC	−0.008	0.023	−0.334
∆lnSMD_PCA	0.033***	0.011	3.133
∆lnINF	0.000	0.003	0.073
∆lnGOV	0.153***	0.020	7.785
∆DUM	−0.012	0.007	−1.616
ECM(−1)	−0.126***	0.020	−6.258
R-squared	0.449	Mean dependent variable	0.008
Adjusted R-squared	0.403	S.D. dependent variable	0.022
S.E. of regression	0.017	Akaike information criterion	−5.219
Sum squared residuals	0.032	Schwarz criterion	−4.984
Log likelihood	317.901	Hannan-Quinn criterion	−5.123
F-statistic	9.763	Durbin-Watson statistic	2.186
Prob (F-statistic)	0.000

*** denotes 1% significance level. lnSMD_PCA is the stock market development indicator calculated using the PCA method.

Table 5. Long-run estimates for ARDL (1, 0, 1, 0, 0, 1)

Dependent Variable: lnY	Coefficient	Standard Error	t-statistic
lnHC	0.460*	0.249	1.850
lnPC	−0.326	0.206	−1.580
lnSMD_PCA	0.269***	0.026	10.538
lnINF	0.001	0.022	0.039
lnGOV	0.601**	0.248	2.427
DUM	−0.191	0.133	−1.436

*, **, and *** denote 10%, 5%, and 1% significance level, respectively.

Table 6. Diagnostic tests for ARDL (1, 0, 1, 0, 0, 1)

Test	Statistic	P-value
Heteroskedasticity CHSQ(1)	0.658	0.417
Serial Correlation CHSQ(2)	3.512	0.173
Functional Form CHSQ(1)	0.032	0.858
Normality CHSQ(2)	2.659	0.265

Figure 2. Plot of cumulative sum of recursive residuals (CUSUM).

Figure 3. Plot of cumulative sum of squares of recursive residuals (CUSUMSQ).

Table 7. Results of cointegration test for the alternative measure of stock market development

Dependent Variable	Function	F-statistic	Cointegration Status
lnY	F(lnY | lnHC, lnPC, lnSMD_MR, lnINF, lnGOV)	4.917***	Cointegrated
Critical value bounds for 5 independent variables
Significance	Lower Bound	Upper Bound
10%	2.26	3.35
5%	2.62	3.79
1%	3.41	4.68

*** denotes significance at 1%. The critical value bounds correspond to the asymptotic critical values for unrestricted intercept and no trend in Table CI(iii) p. 300 of Pesaran et al. (2001). lnSMD_MR is the stock market development indicator calculated using the means-removed method.

Table 8. Short-run estimates for ARDL (1, 0, 2, 0, 3, 1)

Dependent Variable: lnY	Coefficient	Standard Error	t-statistic
∆lnHC	0.042	0.071	0.592
∆lnPC	0.016	0.024	0.681
∆lnPC(−1)	0.040*	0.023	1.720
∆lnSMD_MR	0.011*	0.006	1.753
∆lnINF	−0.003	0.003	−0.791
∆lnINF(−1)	0.007**	0.003	2.017
∆lnINF(−2)	0.008**	0.003	2.395
∆lnGOV	0.165***	0.019	8.713
DUM	−0.015**	0.007	−2.055
ECM(−1)	−0.075***	0.011	−6.743
R-squared	0.487	Mean dependent variable	0.008
Adjusted R-squared	0.422	S.D. dependent variable	0.022
S.E. of regression	0.017	Akaike info criterion	−5.205
Sum squared residuals	0.029	Schwarz criterion	−4.872
Log likelihood	315.878	Hannan-Quinn criterion	−5.070
F-statistic	7.460	Durbin-Watson statistic	2.022
Prob(F-statistic)	0.000

*, **, and *** denote, respectively, 10%, 5%, and 1% significance level.

Table 9. Long-run estimates for ARDL (1, 0, 2, 0, 3, 1)

Dependent Variable: lnY	Coefficient	Standard Error	t-statistic
lnHC	1.395***	0.393	3.552
lnPC	−0.624	0.412	−1.513
lnSMD_MR	0.183***	0.049	3.713
lnINF	−0.123***	0.037	−3.300
lnGOV	1.154**	0.555	2.081
DUM	−0.362	0.242	−1.496

** and *** denote, respectively, 5% and 1% significance level.

Table 10. Diagnostic tests for ARDL (1, 0, 2, 0, 3, 1)

Test	Statistic	P-value
Heteroskedasticity CHSQ(1)	0.031	0.861
Serial Correlation CHSQ(2)	1.205	0.548
Functional Form CHSQ(1)	1.402	0.239
Normality CHSQ(2)	1.029	0.598

Figure 4. Plot of cumulative sum of recursive residuals (CUSUM).

Figure 5. Plot of cumulative sum of squares of recursive residuals (CUSUMSQ).

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