Stock Market Performance, Bank Credits and Economic Growth in Nigeria: A Granger Causality Perspective

Abstract

Given growing interest in the functioning of the broad segments of the financial market and their interrelationships with the economy, this study consequently, evaluates the extent and directions in which the key variables of stock market capitalization, bank credits and economic growth do promote and/or support themselves in Nigeria. The augmented Dickey Fuller (ADF) and standard Granger Causality tests were executed on employment of secondary data sourced from the Central Bank of Nigeria and the Nigerian Stock Exchange over the period 1971-2012 (42 yrs). The results confirm evidence of one significant unidirectional causality which runs from stock market capitalization to bank credits among all the paired variables. Consequently, the study recommends intensified efforts in the development of financial market products, further relaxation of stock market requirements for corporate quotation and securities listing, as well as enhanced enforcement of legal contracts to strengthen the operations of Nigerian financial market institutions and practice in Nigeria.

Key words: Market Capitalization, Bank credits, Economic growth