The Stock Market and Economic Development: The Nigerian Case

Abstract

The stock market is regarded in economic discussions as the hubs of the capital market and the pivot around which the capital market revolves. It is therefore seen as being crucial not only to capital formation/accumulation, but also to economic growth and development. The contributions of developed stock markets to the development of their respective economies has spurred researchers into focusing greater effort towards finding how stock markets contribute to economic development. This study therefore is aimed at determining the economic-growth importance of stock markets, with the Nigerian stock market as a case study. It seeks to highlight the issue of link between the stock market and economic growth. The study adopted the methodology of error correction mechanism which was conducted after a stationarity test. In specifying the model we adopted three models in which stock market indicators and some selected macroeconomic variables are regressed against the performance of the Nigerian economy. The results of the analysis show that market capitalization and value shares traded have positive and significant relationships with economic growth in Nigeria. The data and results were subjected to various statistical tests including – Unit Root Test, Johansen Cointegration tests, F-tests, student-statistic and Durbin Watson-Statistic. The study observed that given some areas of deficiencies in the structure and operations of stock markets in Nigeria, there is need for policy reform and improvements to enable the stock market play the desired role expected of it towards increasing the equilibrium marginal productivity of capital, and promoting national economic growth and development.