Mathijs van Dijk is endowed Professor of Business Administration at the Rotterdam School of Management (RSM), with a particular preference for Financial Markets. He is one of the early contributors to Challenge Accepted: a joint campaign aimed at using research to improve circumstances of people all over the world. His research asks an interesting question: do upcoming stock markets contribute to more inclusive prosperity? Van Dijk: ‘The answer lies in between.’
Mathijs van Dijk is also an alumnus, he studied Econometrics at the Erasmus School of Economics (ESE) and later got his PhD at Maastricht University. In the last twenty years his main focus has been on stock markets. Yet it is not a contradiction that he is part of the Inclusive Prosperity initiative: stock markets can - in theory - make the economy of a developing country stronger.
What did you find interesting about stock markets?
‘I chose Econometrics because I really liked mathematics and statistics. But I also wanted to add something valuable to the world. I wanted to apply maths and statistics to social and relevant issues such as unemployment. But later I found out that econometrics doesn’t work very well for those kinds of macro issues, and the prognoses are not very accurate. There simply aren’t enough data available. On the other hand, econometrics does work very well for the analysis of stock markets, because lots of data are available: every day millions of transactions take place.’
Your social awareness was replaced by studying stock markets?
‘Meanwhile, I have come to understand that stock markets are also very important for a society. A lot of research shows that a well-functioning stock market can help strengthen the economy of a country.’
Stock markets can also cause more inequality, can’t they?
‘Especially for developing countries, stock markets can have an important value. Indirectly, they can lead to better employment rates or better living conditions for its inhabitants. In theory, they can also ensure that more people share in such increasing prosperity, by being invested in the stock market either directly through their private accounts, or indirectly through – for example – their pension funds. At the same time, some evidence indicates that in emerging markets, stock markets contribute to widening inequality. In my research, I chose to focus on stock markets outside of the usual suspects. A lot of research has been done on American stock markets, perhaps 90 percent of all stock market research. My main focus is on stock markets that emerged 25 years ago or less. Especially in African countries, for example Ghana or Tanzania, there are stock markets that we don’t know a whole lot about. But in those countries, a stock market might have the greatest potential to increase prosperity.’
What do you aim to find out with your research?
‘We look at about 70 ‘new’ stock markets and evaluate them. Are they active or not? In some countries like Vietnam the stock market is a success. There is a lot of activity with hundreds of listed companies and the market seems to contribute to the country’s prosperity. On the other hand, you have the stock market in Tanzania, where there are only 7 companies with a stock market listing. Pictures I found online show that sometimes the stock market is only a small room with some chairs and a whiteboard. We are trying to understand: how come it works in one country, but doesn’t work well in the other?’
'In economics we used to say: economists are no priests. We aren’t going to say how things should or shouldn’t be done. But I personally like the fact that there is a normative element to the Inclusive Prosperity initiative.'
Mathijs van Dijk, Professor of Business Administration at RSM and one of the early contributors to Challenge Accepted
Have you found an answer?
‘We have found three factors that matter for stock markets to thrive. There has to be a well-functioning banking system in place, and there have to be sufficient savings in the economy. And the third factor is the way the stock market starts out: it has to have a quick and active start to function well later on. Our ambition is to formulate concrete policy advice to policy makers, governments or regulators, so they can make their stock markets flourish. For example: regulations about the transparency of the market are an interesting issue. What is the role of regulation? Currently, we are also studying the influence that new stock markets had on democracy in 34 African countries. We found that national leaders who opened stock markets stayed in power longer. This suggests that stock markets can also be used for nepotism and to maintain power. The conclusion might be that stock markets in autocratic countries don’t work very well in favour of democracy.’
So there is a dark side after all?
‘I do think so. We hope that our research will help policy makers to design or regulate stock markets in such a way as to reduce the dark side and promote the bright side of inclusive prosperity.’
What is your own opinion on the role of research in business and economics in fostering inclusive prosperity?
‘In economics we used to say: economists are no priests. We aren’t going to say how things should or shouldn’t be done. But I personally like the fact that there is a normative element to the Inclusive Prosperity initiative. It is old fashioned to claim that economists cannot say anything about how the cake is divvied up. If you look at the world today, and if you look at sustainability, I think we are at a point where everyone benefits from more equality and a more inclusive prosperity.’