AN ANALYSIS OF THE IMPACT OF STOCK MARKET DEVELOPMENT ON ECONOMIC GROWTH IN NIGERIA

ABSTRACT

          The stock market is a common feature of a modern economy and it is perceived to perform some necessary functions which promote the growth and development of the economy.  Hence, deliberate effort has been made by various nations, especially those of the developing world to develop their stock markets as a means of achieving economic growth.  This study examines whether the development of the Nigerian Stock Market promotes economic growth in Nigeria over the period of 1981 – 2008.

          To achieve this objective, time series data on some notable stock market development indicators for the study period were obtained from secondary sources.  The study employed the ordinary least squares (OLS) and the co-integration estimation techniques.  However, attention was focused on the co-integration results, given that it allows us to make appropriate policy implications on the relationship that exists between time series variables which may be non-stationary.

          With a 98 percent R-squared and 96 percent R-squared adjusted, the result of the study revealed that economic growth is adequately explained by the model for the study period.  Moreover, the study established that, a positive but non-significant relationship exists between some notable stock market indicators used – market capitalization ratio, turnover ratio, new issues – and economic growth.

          This study suggests the pursuit of policies geared toward improving and rapidly developing the Nigerian stock market as a way of expanding its contribution to economic growth.  The study also calls on all sectors of the economy to act in a collaborative manner such that the optimum benefits of linkages between stock market and economic growth can be realized in Nigeria.

TABLE OF CONTENTS

Title page                                                                                         i

Certification                                                                                    ii

Dedication                                                                                       iii

Acknowledgement                                                                         iv

Abstract                                                                                           v

Table of Contents                                                                            vii

CHAPTER ONE:  INTRODUCTION

1.1            Background of the Study                                                      1

1.2            Statement of Research Problem                                           9

1.3            Objectives of the Study                                                                   12

1.4            Hypothesis of the Study                                                       13

1.5            Significance of the Study                                                      13

1.6            Scope of the Study                                                                 15

1.7            Limitations of the Study                                                       16

CHAPTER TWO:  LITERATURE REVIEW

2.1            Conceptual Issues                                                                  17

2.2            Stock market development and economic growth             24

2.3            Overview of the Nigerian Stock Market                                      35

2.4            Evaluation of the growth/performance of the Nigerian

Stock Market                                                                          46

2.5            Challenges and Prospect of the Nigerian Stock Market    89

CHAPTER THREE:  THEORETICAL FRAMEWORK AND

                                   METHODOLOGY

3.1            Theoretical Framework                                                        96

3.2            Model Specification                                                               103

3.3            Data Sources                                                                          105

3.4            Method of Analysis                                                               106

CHAPTER FOUR:      DATA PRESENTATION AND ANALYSIS OF RESULT

4.1            Presentation of Data                                                             107

4.2            Presentation and Analysis of Result                                   110

4.3            Policy Implication                                                                 125

CHAPTER FIVE:   SUMMARY, RECOMMENDATIONS

   AND CONCLUSION

5.1            Summary                                                                               129

5.2            Recommendations                                                                 132

5.3            Conclusion                                                                                       136

References                                                                                        138

CHAPTER ONE

The mobilization of resources for national development has long been the crucial focus of development economists.  This is because, for sustainable growth and development to take place, funds must be effectively mobilized and allocated to enable business and the economy harnesses their human, material and managerial resources for optimal output.  It is against this background that every country has a financial system which serves as a mechanism for the mobilization of resources for the attainment of economic growth. Consequently, the more developed the financial system of an economy is, the more efficient it is likely to be in the mobilization and allocation of resources for development purposes.

The financial system of any society is the framework within which capital formation takes place.  According to Odife (1994), it is the framework within which the savings of some members of the society are made available to other members of the society. Put differently, it is the arrangement or mechanism by which the savings surplus units of the economy transfer their resources to the borrowing deficit units for the purpose of enhancing economic growth (Okereke – Onyiuke, 2009).  The financial system is made up of two major markets.  These are the money market and the capital market.  According to Elakama (2009), the two markets are at the heart of the financial system.