The Impact of Stock Market on Economic Growth in Nigeria
1996-2023
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Abstract
This study explored the impact of the stock market on economic growth in Nigeria over the period from 1996 to 2023, focusing on indicators such as market capitalization, the All-Share Index (ASI), total value of traded shares, number of listed securities, and number of deals. The research design employed was ex-post facto (causal-comparative), analyzing pre-existing data to explore cause-and-effect relationships between stock market variables and GDP growth. The study used the Vector Error Correction Model (VECM) for time series analysis to assess both short-term and long-term dynamics. Additionally, stationarity tests (Augmented Dickey-Fuller test) and Johansen cointegration tests were applied to examine the long-run equilibrium and short-run relationships. The data for the analysis were sourced from the Nigerian Exchange Group (NGX), Securities and Exchange Commission (SEC), National Bureau of Statistics (NBS), and the Central Bank of Nigeria (CBN). All computations and analyses were carried out using EViews 12.0 software. The findings revealed that in the long term, market capitalization (MCA) had a negative impact on economic growth, with a coefficient of -2.42, suggesting that a 1% increase in market capitalization led to a 2.42% decrease in GDP growth. On the other hand, the All-Share Index (ASI) had a positive effect on economic growth, with a coefficient of 1.47, indicating that a 1% increase in the ASI resulted in a 1.47% rise in GDP growth. Similarly, the total value of shares traded (TVS) and the number of deals (NOD) were positively associated with GDP growth, with coefficients of 0.79 and 0.66, respectively. However, the number of listed securities (NOS) showed a negative relationship, with a coefficient of -15.76, meaning that a 1% increase in listed securities led to a significant 15.76% drop in GDP growth. In the short run, stock market variables had limited effects on GDP growth, with the error correction term (ECT) indicating that 26.4% of short-term disequilibrium was adjusted in the following period. The study concluded that while stock market variables have a long-term effect on economic growth, their short-term influence is less significant. It recommended improving market capitalization quality, enhancing market liquidity, ensuring the listing of high-quality securities, and fostering a more robust financial ecosystem to support long-term growth. Addressing these issues could help Nigeria’s stock market play a more significant role in its economic development.
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