Abstract
This study examines the effect of stock market development on economic growth in Nigeria. The study spans the period 1980-2016. It employs the ARDL approach to cointegration. Evidence from the study indicates that stock market development promotes economic growth in the short-run, but in the long-run, the growth impact of stock market development is not significant. The growth impact of market capitalization, value of shares traded, and market turnover ratio are all significant in the short run while that of trade openness is not. Meanwhile, trade openness is the only variable that significantly impacts economic growth in the long-run. The Bounds test for cointegration reveals a long-run relationship among the variables. All the variables, apart from trade openness, are positively correlated with economic growth. The results of this study imply that stock market development plays a major role in economic growth in Nigeria. It is recommended that the regulatory authority enacts policies that will promote liquidity, stability and accountability in the stock market which could possibly perpetuate economic growth in Nigeria.
Highlights
This study examines the effect of stock market development on economic growth in Nigeria
The capital market is a sub-set of the financial system that serves as an engine of growth in modern economies
On the strength of the above, this study attempts to dig out the empirical evidence in the context of Nigeria regarding the effect of stock market development on economic growth, resolve the liquidity-growth nexus puzzle and examine the direction of causality, if any, between stock market development and economic growth
Summary
Annual time series data on Gross Domestic Product (GDP), market capitalization, the total value of stocks traded, and the turnover ratio of stocks traded covering the period 1980-2016 are employed. Stock market capitalization represents the size of the stock market. It is the total value of the listed stock. The total value of stocks traded and turnover ratio of stocks traded variables represent liquidity of the stock market. It is the ratio of total value of stock traded to GDP. Market turnover ratio is the ratio of total value of shares traded on the stock market to market capitalization while trade openness is the ratio of trade to GDP. The annual time series data were obtained from the Nigeria Stock Exchange Annual Reports and Account of various years; and the Central Bank of Nigeria Statistical Bulletin (2017)
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