1. Dubai Stock Market Development And Its Effect On Economic Growth
Introduction
Understanding the financial market is very important to capture the economic policies and
development of any country. Stock markets are essential as it helps companies raise capital
for investment (Bose, 2001). It lists the company’s expectations about profitability from its
current prices. Now, since profitability is linked to economic activity, therefore, the activities
in the stock market plays a very important role in analysing the economic growth and
direction of economy.
Since the 1987 stock market crash, several studies have been conducted to understand the
volatility of the market (Woertz, 2006). The measure of risk is very important in the financial
market and it is required by portfolio managers and investors. Financial institutions and
regulators also require knowledge about the stock markets so that they can understand the
market risks.
Since the second global financial crisis of 2008, global stock markets faced a lot of trouble
and the Dubai financial market also had to face the music. Since the real estate bubble, the
government of Dubai was burdened with $59 billion on liabilities and its total debt reached
$80 billion within a few weeks (Oxford, 2008). The importance of the financial market in the
economic growth policies of any country has never been more emphasized. With the financial
crisis subsiding over the past year, the Dubai stock market once again tries to establish itself.
This paper tries to analyse the impact of the Dubai stock market on its economic growth and
the various factors that has played a role in development of the economy.
Dubai’s Stock Market Position

2. The United Arab Emirates (UAE) stock markets were set up in 2000 and the Dubai Financial
Market (DFM) also started its operations in March 2000 (Bose, 2001). In 2005, DFM was set
up as a public joint stock company (PJSC) and this market is being regulated by the Emirates
Securities and Commodities Authorities (ESCA) (Oxford, 2008).
Since its inception, the Dubai stock market has experienced tremendous growth and it has
been one of the driving forces in the financial market of UAE. Today, the Dubai stock market
registers the largest volume of trading activity in the Saudi Stock Exchange. In 2007, PJSC
shares were introduced to DFM at a price of $0.28 and on the first day itself the share value
rose to $0.61 (Oxford, 2008). This clearly showed the promise that the Dubai stock market
instilled in the people.
As of 2007 there were 57 companies listed on DFM and with a total market cap of around
$360 billion (Oxford, 2008). 2004 and 2005 were the best years for the Dubai stock market as
it was around this time that most of the business took place. Most of the companies listed in
DFM are based in UAE and they traded heavily during 2004 and 2005. However, in 2006,
there was a sharp decline in the volume of shares traded over the Dubai stock market (CARE,
2009).
Dubai’s Economic Growth Policy
Initially, Dubai was solely dependent on oil for any sort of business activity. However, with
the trade reforms of 1999, several foreign firms entered the Dubai financial market and
played a significant role in developing the economy of Dubai (Bose, 2001). Today, real
estate, financial services, petroleum and trade play an important role in the GDP of Dubai.
Dubai contributes over 29% to the total GDP of UAE and it has turned out to be the best
services sector amongst all the GCC countries (CARE, 2009). The most important sectors
that contributes maximum to the GDP of Dubai are the real estate and construction sector,

3. which is almost 23% of the total GDP of Dubai. Trade and export contributes 31% while
financial services contribute another 11% of the GDP. The other sectors, including retail,
contribute around 9% to the total GDP (CARE, 2009).
Source: CARE, 2009
Stock Market Development
Several factors have contributed to the growth of the economy of UAE. One of the most
important factors has been the increased oil revenues and the low interest rates. The boom in
the real estate sector also helped in developing tourism and infrastructure of Dubai. This in
turn increased the amount of foreign investments in Dubai. The Dubai stock market
witnessed a substantial growth in activity during 2007 on account of large IPOs such as Air
Arabia, Deyaar and DFM (Oxford, 2008).
Source: Woertz, 2006
In 2007, the Dubai stock market showed strong operating growth and the three IPOs together
accounted for nearly 48% of the total traded activity in FY 2007 (Oxford, 2008). The

4. turnover ratio of traded shares in the Arab stock markets clearly shows that the Dubai stock
market has performed better than most other markets (Sabri, 2008).
Source: Sabri, 2008
Today, the Dubai stock market is performing well due to the real estate boom and better
regulatory frameworks installed by the government.
Companies Listed in the Dubai Stock Market
Some of the companies listed in the market include Ajman Bank (AJMANBANK), Tamweel
(TAMWEEL), Dubai Investments Company (DIC), SHUAA Capital (SHUAA), Arab
Insurance Group (ARIG), National General Insurance (NGI), Emaar Properties (EMAAR),
Union Properties (UPP), Gulf Navigation Holding (GULFNAV), National Cement Company
(NCC) and United Foods Company (UFC). There are several other companies from various
fields such as banking, transportation, telecommunications, real estate and construction
(Woertz, 2006).
Financial Crisis Impact

5. The Dubai financial crisis also affected the stock market. The main reasons for the downfall
were (Woertz, 2006):
1. Extreme volatility of the dollar as most GCC countries were dependent on the dollar.
2. Crash of equities and stock market in most of the countries also led to the stock
market of Dubai.
3. Liquidity squeeze as a result of the global real estate crash affected the stocks.
4. Weak regulatory framework and inconsistent policies accompanies with lack of
transparency in governance were other major factors behind the downfall.
However, with the establishment of regulatory frameworks in Dubai, most of the effects of
the recession have subsided. Today, Dubai stock market is once again booming with several
foreign investors looking to invest in this market.
Impact of Stock Market on Economic Growth
The Economic growth of Dubai has been achieved due to the developments in the financial
market of Dubai. The main reasons behind the economic growth of a country and the impact
of stock market (Levine, 1997) on it have been shown below:

6. Source: Levine, 1997
Recent theoretical and empirical evidence suggests that the stock market has a long lasting
effect on the economy of a country (Garcia and Liu, 1999. The value of shares traded in the
stock market helps us to analyse the effect it has on the economy of a country (Levine, 1996).
The stock market of Dubai clearly suggests that it has a great impact on the economy of
Dubai. The impact of the global recession did have some impact on the economy of Dubai
but with revival in domestic demand there has been a revival in the economy of Dubai. UAE
is showing interest in lending money to banks located in Dubai and this could be very helpful
in reviving the economy of Dubai. Statistics from past research suggests that there is a
positive relationship between stock market development (turnover ratio) and economic
growth while inflation has a negative impact (Bose, 2001).
Conclusion

7. In conclusion, it can be stated that the Dubai stock market has had a positive impact on the
economy of Dubai. With new IPOs, there is possibility of high liquidity in the market. The
real estate and construction market are sure to attract more sophisticated investor base in the
long term. In 2007, several regulatory frameworks were installed which adjusted public
offerings ceiling to 30% and these regulations would definitely instil faith in the investors
(Oxford, 2008). Internationally, the global equities market will definitely increase the
importance of the Dubai stock market. Institutional investors have already started investing in
the stock market of Dubai and this is bound to increase in the future.
Economic growth of Dubai has suffered due to the financial crisis but the government can
definitely avoid any further downfall by installing strict regulatory frameworks. Though
Dubai is under huge debts, the investors can be lured into the market by instilling confidence
in them.
References
Bose, Niloy. (2001). The Evolution of the Stock Market in Economic Development. Centre for
Growth and Business Cycle Research, School of Economic Studies, University of
Manchester.
CARE. (2009). Dubai Financial Crisis: Limited Impact on the Indian Economy. Retrieved
December 11, 2011, from http://www.careratings.com/current/3/5769.pdf
Garcia, Valeriano, and Lin Liu. (1999). Macroeconomic Determinants of Stock Market
Development. Journal of Applied Economics. 11, 29-59.
Levine, Ross. (1996). Stock Markets: A Spur to Economic Growth. (Finance and
Development Division, the World Bank's Policy Research Department).

8. Levine, Ross. (1997). “Financial Development and Economic Growth: Views and Agenda”,
Journal of Economic Literature. xxxv, 688-726.
Oxford. (2008). The Report: Dubai 2008. Oxford Business Group.
Sabri, Nidal. (2008). Financial Markets and Institutions in the Arab Economy. Nova Science
Publishers, Inc.
Woertz, E. (2006). “GCC stock markets at risk”, Gulf Research Center. Working Papers,
Dubai, March 2006.