The Impact of Stock Market Development on Economic Growth in Nigeria

Abstract

This study examines the impact of stock market development on economic growth between1970 and 2008. Co-integration Analysis and Error Correlation Mechanism were adopted as the estimating techniques to verify the existence of long-run relationship between stock market development and economic growth. Questionnaires were administered to access the investor’s confidence in the Nigerian stock exchange and to authenticate the impact of stock market development on economic growth in the period under review. The empirical results revealed that there is existence of long-run relationship between stock market development and economic growth in Nigeria. The findings also showed that there is positive relationship between market capitalization and money supply with economic growth while total value traded, turnover ratio and gross capital formation have inverse relationship with the growth. Market capitalization is highly significant and appears to be the major stock market indicator.  Based on these findings government should address the shortage of investment assets through effective policy measures that enhance the performance of stock market in Nigeria and to restore confidence of the investors.

Keywords: stock market development, economic growth, Co-integration and Error Correction Framework and the use of descriptive survey type