Stock Market and Economic Growth: The Nigerian Experience



The study examined stock market-economic growth nexus in the Nigerian economy. It specifically investigates the effects and the causal relationship between the two variables in Nigeria. This was with the view to providing empirical evidence for stock market operation to stimulate economic growth with maximising the welfare of the people. The study employed annual time series data from 1981 to 2008 collected from various issues of Central Bank of Nigeria’s Statistical Bulletin and Annual Report and statement of Account of Nigeria Stock Exchange 2009 edition. An Error Correction Mechanism (ECM) Model was adopted in the analyses of the interaction between stock market and economic growth. The granger causality pairwise test was conducted in determining the causal relationship among the variables.

The empirical results showed that, there was unidirectional causality between stock market and economic growth, which ran from economic growth (GDP) to stock market (MCAP) at 5 percent significant level., stock market has negative effect on economic growth in the short run but positive effect in the long run with (t=1.6, P>0.05) and (t = 4.6, P<0.05) respectively. However, the effect was statistically significant at 5% level of significance only in the long run. The study concludes that, the Nigerian stock market is no exception to other developing countries which are working towards reforming and deepening their financial systems through the expansion of its stock markets in order to improve their ability to mobilize resources and efficiently allocate them to the most productive sectors of the economy so as to enhance economic growth.

Keywords: Market Capitalization, Total Value of Transactions, Total New Issues, Gross Domestic Product and Bank Total Asset

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