Stock Market Development and Economic Growth in Nigeria: A Time Series Study for the period 1980-2007

Chizea, John (2012) Stock Market Development and Economic Growth in Nigeria: A Time Series Study for the period 1980-2007. Doctoral thesis, Northumbria University.

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Abstract

This research empirically examines the relationship between stock market development and economic growth in the context of Nigeria. The question guiding this study is focused on whether the development of the stock market has had an impact on economic growth in Nigeria.

The thesis examines the long run causal relationship between the stock market and economic growth. It uses one bank and three measures of stock market development: the loans to deposit ratio of banks, Market capitalisation ratio, value traded to market capitalisation ratio as well as value traded to GDP ratio. Essentially the study uses the endogenous growth theory as a basis of its theoretical foundation.

The study exploits time series analysis techniques to test for the existence of a relationship and, where one is found to exist, the casual nature of that relationship. The study particularly applies Multivariate vector autoregressive models (VAR) and Vector Error Correction Models (VECM) in testing for the existence of a relationship.

The evidence obtained from the study shows the existence of co-integration between the stock market development and economic growth in the short as well as the long run. This suggests that stock market development has impacted on economic growth in Nigeria.

The Granger causality test findings indicate the presence of a bi-directional relationship between stock market development and economic growth. The findings of the study support the view that stock market development and economic growth in Nigeria are complementary and any improvements in the stock market would have a positive impact on economic growth in Nigeria.

The findings also support the hypothesis of endogenous growth models that financial development causes higher economic growth. The contribution of this study lies in the fact that it provides additional evidence on the ongoing debate of the impact stock markets on the economic growth process within a specific country.

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