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STOCK MARKET DEVELOPMENT INDICATORS AND ECONOMIC GROWTH IN NIGERIA (1990-2009): EMPIRICAL INVESTIGATIONS
Stock market provides the bridge through which the savings of surplus units may be transformed into medium and long-term investments in the deficits units. It is reputed to perform critical functions, which promote economic growth and prospects of the economy. Empirical evidence linking stock market development to economic growth has been inconclusive even though the balance of evidence is in favor of a positive relationship between stock market development and economic growth. This paper explores the hypothesis that stock market development promotes economic growth in Nigeria and attempts to confirm its validity or otherwise, using quarterly data from 1990:1 to 2009:4 for Nigeria by employing vector error correction model (VECM) technique on the commonly used stock market development indicators. From the result, the model for the total value of shares traded ratio (vr ) has the best fit followed by the market capitalization ratio (mcr) model while the model for the turnover ratio (tr) lagged behind. The results for mcr and vr are analysed in this paper, as they performed better than the model for tr.
From the result, it was revealed that the coefficient of the error correction term ECM (-1) carries the expected negative sign and is highly significant at 1.0 pe cent level. The model validates the hypothesis that the stock market promotes economic growth in Nigeria during the period of analysis. The F-test statistic of 10.88 shows the overall model fit is significant at 1.0 per cent. Similarly, the vr model shows that the ECM (-1) has the expected negative sign and significant at 1.0 per cent. The model favours the proposed direct relationship between stock market indicators and economic growth in Nigeria during the period of analysis. The F-test statistic of 13.39 shows that the overall model fit is significant at 1.0 per cent.
Keywords: Stock Market Development Indicators, Economic Growth, Vector Error
Correction Model, Nigeria