Abstract:
Financial sector plays a crucial role in economic development. The depth of the financial sector has
generally been found to promote economic growth. It has been observed that well functioning
capital markets increases economic efficiency, investment and growth. Kenya’s capital market has
been described as narrow and shallow. The stock market and private bond market have been raising
less than 1% of growth financing. The vision 2030 development plan aims to achieve an annual
economic growth of 10% with an investment rate of 30% to be financed mainly from mobilization of
domestic resources. There has been significant focus on the capital market with for example the
institutional development of the stock market and introduction of new instruments in the bonds
market. It has been assumed that these efforts will facilitate mobilization of adequate resources and
allocation of these resources efficiently to achieve growth objectives. This study therefore aims at
answering the question on whether capital market deepening facilitates economic growth. This is
analyzed by studying the contribution of the capital market in financing investment, the relationship
between capital market deepening and productivity and finally, the relationship between capital
market deepening and economic growth.
