THE STUDY OF GOVERNMENT POLICY ON STOCK MARKET DEVELOPMENT AND ECONOMIC GROWTH IN NIGERIA (1984-2020)

Abstract

This study explored the relationship between stock market development and Nigerian economic growth. This was done to look at Nigeria's stock market and economic growth from 1984 to 2020. The analysis relied on secondary data. The Central Bank of Nigeria statistical bulletin for 2021 presented data on stock turnover ratio, stock market capitalization ratio, total value of shares exchanged ratio, all share index, and GDP. Granger causality, Augmented Dickey Fuller Unit root test, Johansen cointegration test, and error correction model were used to analyze the data. Granger causality was shown. There is no reverse causality between stock market development metrics such as stock market capitalization ratio, turnover ratio, or total value of shares exchanged ratio and economic growth. All share index, stock market capitalization ratio, turnover ratio, and economic growth were integrated of order 1, while total value of shares traded ratio was integrated of order zero, according to unit root test results. The Johansen cointegration test showed that the All-Share Index, Stock Market Capitalization Ratio, Turnover Ratio, and Economic Growth all have four cointegrating relationships. Changes in the all-share index have a positive and significant impact on changes in economic growth, whereas changes in the stock market capitalization ratio and its lag have a negative but insignificant impact on changes in economic growth (p>0.05). Changes in the turnover ratio have a positive but insignificant impact on changes in economic growth (p>0.05), while its lag has a negative but insignificant impact on changes in economic growth (p>0.05). Changes in lagged GDP have a positive and important effect on changes in economic present-period growth (p0.01), and economic growth and the independent variables in our model have a long-run relationship as indicated by the negative and statistically significant error correction term in the model (p<0.01). Based on the results, the study recommends that the Federal Government intervene through the Asset Management Corporation of Nigeria (AMCON)/Ministry of Finance Incorporated, that more indigenous quotable companies be encouraged to pursue listing by offering incentives such as tax holidays, tax rebates, and other incentives, and that stock broking firms be encouraged to join forces, either through mergers or outright acquisition amongst other recommendations.