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This work analyzed the dynamics of stock market development and economic growth in Nigeria from 1984 -2017. The specific objectives were to:  determine the impact of stock market size on Nigeria’s economic  growth;  determine  the impact  of stock market  liquidity  on Nigeria’s economic  growth; ascertain whether there was existence of long    run relationship between  stock market development and Nigeria’s economic growth;  determine the existence and level of volatility clustering in Nigerian stock market, and determine the degree and direction of causality between stock market development and Nigeria’s economic growth. Variables such as market capitalization, number of listed companies, total value traded, turnover ratio, all share index, banking development, inflation rate, trade openness and real gross domestic product  were used in the investigation.  Ex-post-facto  research  design was used for the study which was guided by the five research  objectives  and hypotheses. The study’s population  was the values of stock market indicators  from  1961  —  2017, excepting  all share index which was  1984     2017;  also was the values of macroeconomic  variables  from 1960  -2017.  Time series  data  covering  the  period  of 1984      2017  were  used  as  the  sample  size.  Autoregressive Distributed Lag model (ARDLM), Exponential Generalized Autoregressive Conditional Heteroscedasticity (1.1) (EGARCH) model and Toda Yamamoto causality test, along with their preliminary and diagnostic tests were employed to test the hypotheses all of which were conducted at0.05  level  of significance.  For  purpose  of  accuracy  in  results,  E-views  statistical  package  was employed.  Among  the major  findings  of the  study were  that  stock market  size had positive  and significant  impact on economic  growth. The stock market liquidity had positive but non-significant relationship with the economic growth. There was volatility clustering with explosive persistence and negative  asymmetric parameter  in the market. The study concluded that the Nigeria stock market is growth  inducing;  but  still relatively  underdeveloped   and  was  plagued  with  volatility,  for market indices to exert significant  impact on the growth of the economy.  Among  other recommendations, Security  and Exchange  Commission  should  through  moral  suasion  and/or  government  legislation bring private  companies  that have met certain financial  thresholds  to convert to public  companies. This is part of the strategy used to get MTN listed on the Exchange, and AIRTEL is also being listed. Other telecommunication companies  should be approached. This will increase the number  of listed companies and go a long way in broadening and deepening the base of the market to promote growth.




Every economy  seeks to create and promote  an effective  financial  system. Financial  system comprises  of money and capital markets.  The capital market consists of stock market,  issuing houses,  investment  advisers,  regulators,  fund  managers,  etc.  The  stock  market  is the  key participant   and   hallmark   of  the   capital   market;   hence   two   of  them   are   often   used interchangeably.  Principally  the  stock  market  lies  at the  heart  of the  financial  system.  Its primary  function  is to serve as a mechanism  for transforming  savings into financing  for the real sector.

The  stock  market  is  viewed  as  a  complex  institution  with  inherent  mechanisms   through which  medium  to long term  funds of the major  sectors  of the economy  (house-holds,  firms and  governments)   are  mobilized   and  made  available  to  various  sectors  of the  economy (Levine,  2003; Nyong,  1997;  Akinde,  2015).  It creates  a market  place  where  funds  can be raised through  assets with attractive  yields,  liquidity  and risk characteristics  (Bencivenga  & Smith,  1991;  Akingbohumgbe,  1996).  A  large  proportion   of these  funds  are  allocated  to firms basically on their rate ofretums.

Stock markets  serve important  functions  in an economy  by facilitating  savings mobilization, allocation  of funds for investment, offering  portfolio  diversification  opportunities,  providing liquidity  for  investors  and  conveying   corporate   information   (Greenwood   &  Smith,1996; Levine  &  Zervous,   1998;  Sharp  &  Bailley,  1999;  Rousseau   &  Wachtel,  2000;  Beck  & Levine, 2003; Paudel,  2005 cited in Shahbaz, Ahmed, & Ali, 2008; Akinde,  2015).

Further,  stock markets  also serve these critical purposes:  they encourage  broader  ownership of productive  assets by small savers and hence enable them to benefit from economic  growth and wealth  distribution. They improve  competitiveness  of domestic  companies  and enhance their  ability  to compete  globally.  They  also attract  foreign  portfolio  investments  which  are critical in supplementing  the domestic saving levels.

Additionally, through the provision  of equity capital, the stock markets  enable companies  to avoid over-reliance  on debt financing,  thus improving  corporate  debt-to-equity  ratio (Yartey & Adjasi,  2007;  Olusegun,  2011).  They help in diffusing  stresses  on the banking  system by matching   long-term   investments   with  long  term  capital.  Further  governments   go  to  the markets  to  borrow   for  their  infrastructural  developments.  In  most  developing   countries however, according  to Olusegun  (2011), stock markets  have  fallen  short  of expectations  in spite  of their  great potentials  for financing  development.  As  a result,  these  countries  have resorted to external borrowing that has brought them excruciating foreign debt problems.

A  stock  market  undergoes  different  stages  of development  that  bring  improvements  in  its functioning.  Stock  market  development  implies  increasing  or  improving  a  stock  market’s ability  to  satisfy  an  economy’s  needs  as  stipulated  among  the  main  functions  of stock markets.   The   development   of  stock   markets   provides   opportunities   for  greater   funds mobilization,   improved    efficiency   in   resource    allocation    and   provision    of  relevant information  for appraisal  (Levine  & Zervous,  1996;  Inanga & Emenuga,  1997;  Ifeoluwa  &


The level of stock market development is reflected in the quality of services provided by the stock market. According to Okonkwo, Ogwuru, and Ajudua (2014), the primary measure to assessing the expansion of a stock market is to look at changes in its dimension.  El Wassal (2013) corroborates by stating that there is no single criterion that could be used to measure stock market development, there are set of indicators needed to capture the main aspects of the development, namely;  stock market size, stock market liquidity,  stock market volatility, stock market concentration and stock market linkage to real sector performance. Using these varieties of indicators could provide a more robust, dynamic and accurate depiction of stock market development  as it is a complex and multi-faceted  concept and no single measure of indicator can capture all these aspects of development.

The development  of a stock market is primarily a private sector activity (El- wassal,  2015). This notwithstanding,  it must be noted that the supporting role of the government  is crucial for a market to develop.

Mckinnon  (1973) and Goldsmith  (1969) have suggested that there is a linkage between the stock market  development  and economic  growth.  Economic  growth  is an increase  in the capacity of an economy to produce goods and services, compared from one period of time to another. In simplest form, it refers to an increase in aggregate productivity. Higher economic growth is positively  associated with and can be translated  to an increased  quality of life or standard of living. According to Onwuemere, Imo, Okafor, and Ugwuanyi (2012), one of the

major  ways to generate economic  growth is to create capital goods and increase productivity. The rate of capital growth is highly dependent on the rate of savings and investments.

A  good  number  of studies  like  Beck,  Levine,  and  Loayza  (2000),  Riman,  Esso,  and  Eyo (2008), Dafarighe  (2009), and Donwa and Odia (2010) state that stock markets play a crucial role  in  economic   growth.  It  is  regarded   as  a  necessary   tool  for  economic   growth  and development  as it provides  listed  companies  the platform  to mobilize  much  needed  capital for  long-  term  investments.  This  idea  that  stock  market  development  promotes  economic growth  dates back  to the works  of Bagehot  (1873)  and  Schumpter  (1912) both  cited in El• wassal  (2013).  This  link  between  stock  markets  and  economic  growth  pivots  on  a major strand  of  finance-   growth   hypothesis   (Schumpter,   1912;  Mckinnon,   1973;  Ifeoluwa   & Motilewa,  2015)  with   an  insight  into  how   finance   intermediation  facilitates   economic growth. Corroborating, Levine and Zervous (1996), Khan (2000), and Caporale, Howells and Soliman(2004)   assert that the finance  intermediation comes through  a number  of channels, savings  mobilization,  funds  allocation,   liquidity   and  risk  diversification.  Through   these channels  economic  growth  is engendered.  For  instance,  savings  mobilization  may increase the rate of saving and if stock markets  allocate savings to investment projects yielding higher returns,  the  increasing  rate  of return  to  savers  will  further  make  savings  more  attractive. Consequently,  more  savings  will  be  channeled  into  the  corporate  sector  for  investments bringing about economic growth.

However,  there is the other side of the argument  stating that the link between  stock market development   and   economic   growth   centers   on   growth-finance   hypothesis.   The   early proponents  of this approach  were Robinson  (1952),  Lucas (1988)  and Chandavakar  (1992). Others were Gurley and Shaw (1960), Gelb (1989) and Singh (1997).  They all cast doubt on the importance  of stock market for economic  growth.  They argue that it is economic  growth that  accelerates  development  of stock  market  through  the  increasing  demand  for  financial instruments  which  expedite  stock  market  development.   Yet  another  side  of the  argument could not specifically  establish  any link (Summer,  1988;  Mayer,  1988;  Mazur  & Alexander, 2001 ).  They  contend  that  even  large  stock  markets  are  unimportant   sources  of corporate finance.  The debate is on-going with contemporary  scholars taking diverse positions.

In Nigeria,  the stock market is represented  by Nigerian  Stock Exchange  (NSE).  The NSE is the center-point  and hallmark of Nigerian  Stock Market. It provides  a mechanism  to mobilize private  and public  savings  as well  as making  such funds available  for productive  purposes

The NSE was established  as Lagos Stock Exchange  in 1960.  It started operations  in 1961.  In

1977,  it was  renamed  Nigerian  Stock  Exchange  with  branches  established  in  some  major commercial  cities of the country.

The  Nigerian   Stock   Exchange   has   been   undergoing   some  positive   changes   smce   its establishment.   The  changes,   according   to  Soyode  (1990),  became   remarkable   with  the introduction    of  the   Structural   Adjustment    Programme    (SAP)   which   resulted   in   the deregulation  of the financial  sector and the privatization  exercise that exposed  investors  and companies  to  the  significance  of the  stock  market.     Further,  there  have  been  numerous infrastructural  developments  in the market. Amongst them are:  introduction  of the automated trading system (ATS);  linking up the market with the Reuters Electronic  Contributor  System for online global dissemination  of the market information;  launching of the market’s  internet system  (CAPNET),  and  the  introduction  of Central  Securities  Clearing  System  (CSCS)  as part  of the  infrastructural  supports  for  meeting  the  challenges  of internationalization  and achieving  enhanced  service  delivery.  Unfortunately, prima  facie  all these  have not  yielded positive   impact  on  Nigeria’s  economy.  The  listing  requirements   are  still  stringent   and expensive. And the market  still suffers  from  capital  flows arising  from volatility  in foreign portfolio  investments.


The Nigerian  stock market is full of uncertainty  and instability,  causing large financial losses and  confidence   crisis  among  the  investors.  Within  the  period  under  review  (particularly between  1997  and  2017),  it had  shed  trillions  of Naira  intermittently.  Further,  the  market appears isolated from the Nigerian  macro-economy  as it is not playing  its signaling function. This  is  suggestive   of a  disconnection   between   the  market   and  the  Nigerian   economic performance. Perhaps the market has not yet developed  to be able to influence  the economy. Another   important   concern   is  the  lack  of consensus   among   scholars   on  the  nature  of relationship  existing  between  stock markets  and economic  growth. The ongoing  conflicting positions  are  clear  evidence  that  earlier  studies  conducted  may  not  have  been  enough  to produce  a definite  answer.  In the  light  of the  foregoing, this  work  becomes  compelling  to seek answers to a number of questions.

Levine  &  Zervous  (1996),  and  Obadan  (1998)  posit  that  stock  market  should  serve  as  a dependable   guide  in  the  measurement   of  changes   in  the  level  of  economic   activities.

According to them, stock market should serve as signal to economic changes. In other words, when stock market  experiences  growth,  it is supposed to spur economic  growth.  According to Akinde  (2015),  in many countries of the world,  the stock market plays invaluable roles in economic  growth.  Stock market has been  identified  as an institution  that contributes  to the economic  growth  of both  emerging  and developed  economies.  This is achieved  by being  a conduit  for  channeling  resources  to  institutions  that  have  need  of funds.  Theorists  have maintained   that  the  trend   of  stock  market  performance   indices   contribute   to  national economic  growth  (Schumpeter,  1932  and Goldsmith,  1969  as cited  in  Murtala,  Suraya,  & Zunaidah,  2015;  Levine  & Zervous,  1996;  Greenwood  &  Smith,  1997;  Boca,  2011).  Also empirically,  a large body of studies clearly  show that stock market  development  is strongly and positively  connected with the level of economic growth (Guglielimo, Peter,  &Alan,2003; Ogunleye  & Adeyemi, 2015). There is, therefore, some evidence that the stock market at its efficient level remains an important contributor to economic growth.

The Nigerian  stock market has no doubt witnessed  some relative  stability and also recorded some reasonable growth over the years, particularly since the deregulation and various privatization   exercises  (Soyode,   1990;   Okodua  &  Ewetan,   2013;  Ogunleye  &  Adeyemi,

2015).  The growth is evident in many aspects:  for example,  the increasing  number of capital market  instruments  traded  on  the  exchange,  market  capitalization   and  market  index.  In addition,  the  internationalization  of the  market  and  improvement   in  the  infrastructural facilities in the market in line with what obtains in the developed nations such as automated and internet transactions has enabled the market to benefit from the current economic globalization  (Murtala,  Suraya,  & Zunaidah,  2015).  All these have  facilitated  increase  of

public interest in the market (Olusegun,  Oluwatoyin, & Fagbeminiyi, 2011).  Evidently, with

these developments the NSE is positioned to positively impact on the economy. According to El-  Wassal  (2005),  such  observed  phenomenal   growth  of emerging  markets  has  been considered  as  a  significant  development  to trigger  process  in the  concerned  economies. However, this remains to be satisfactorily verified.

These developments notwithstanding, there have been cases of corruption/market  infractions and corporate  governance  issues  in the market.  According  to Onyeama  (2013)  and Oteh (2014),  these impinge on investors’ confidence  and the general economic  growth.  Further, and very important, the market is heavily dominated by very few companies. This distorts the signaling function of stock markets. Again, issues of macro-economic  instability particularly

high inflation  rate in the system and uncertainty  in the political  space like ethnic unrest and insecurity can pose some constraints on the market to bring about economic growth.


The broad objective of this study was to analyze the dynamics of stock market development and economic growth in Nigeria between 1984 and 2017. The specific objectives were:

1.    To determine the impact of stock market size on Nigeria’s economic growth.

2.   To determine the impact of stock market liquidity on Nigeria’s economic growth.

3.   To determine whether there is a long- run relationship between stock market development and Nigeria’s economic growth.

4.   To determine the existence and degree of volatility clustering in Nigerian stock market.

5.   To determine  the nature  of causality between  stock market development  and Nigeria’s economic growth.


The following research questions became necessary in order to address the objectives:

1.    To  what  direction  and  degree  did  stock  market  size  impact  on Nigeria’s  economic growth?

2.   To what direction and degree did stock market liquidity impact on Nigeria’s  economic growth?

3.   To what  direction  and  degree  was  there  long run  relationship  between  stock market development and Nigeria’s economic growth?

4.  To what degree was there volatility clustering in Nigerian stock market?

5.  To what degree and direction was there causality between stock market development and

Nigeria’s economic growth?


The hypotheses for this study are stated in their null forms as follows:

1.    Stock market  size did not have positive  and significant  impact on Nigeria’s  economic growth.

2.   Stock  market   liquidity  did  not  have  positive   and  significant   impact  on  Nigeria’s economic growth.

3.   Stock market  development  did not have long-run relationship  with Nigeria’s  economic growth.

4.    There was no volatility clustering in Nigerian stock market.

5.    There  was  no  causal  relationship   between   stock  market  development   and  Nigeria’s economic growth.


In this study, the focus was on stock market development  and economic  growth. The time frame of the study covered thirty four years from the year 1984 to 2017.  The choice of the base year,  1984,  was informed by the fact that it was the first full year of operation of the NSE  all-share  index  (ASI),  which  is  one  of the  variables  of the  study.  The  exchange maintains an ASI formulated on 3″ January,  1984 at 100 basis points. For the currency of the study,  2017 was chosen  and to the best  of the researcher’s  knowledge,  2017 is the most current year that has an official published  dataset. It is the researcher’s belief that 2017 is current enough as to make the work significant and useful for valid decision making.

The geographical  scope is Nigeria while variables of interest are stock market and Nigerian economy. As regards to content scope, the research work covered almost all the activities of the major  indicators  of Nigerian  stock market. Further the work reflected the dynamism of Nigerian stock market as it captured the bubbles and the bursts that characterized the period of the study.  The period  witnessed  among others the global financial  crises from 2007 to 2009.


This study may be of immense benefit to the following groups:

Policy Makers

Investors  in  developed  markets  are  increasingly  becoming  convinced  of the  economic opportunities  in investing in emerging markets. There are many possible  emerging markets among which investors can choose. It therefore becomes  essential that sound and practical policies are developed so as to ensure that Nigeria benefits from the tide of capital inflows, rather than misses out.

The study will help the policy makers to determine what polices that can be formulated, what regulatory  acts that are needed  and the necessity  of amendments  regarding  the rules  and regulations  to develop the market and make it better functioning  so as to contribute to the economy.  It  is  expected  to  give  poliey  directions  to  the  relevant  government  agencies regarding market transaction costs, listing requirements and market diversification.

With the empirical evidence of this study, better policies could be drawn and implemented by both the government  and regulator to position the market for a significant  contribution  to the economy.


Both local and foreign investors would benefit maximally from the study.  It would increase their knowledge of the dynamism of the market. They would like to know the profitability  of their investments and the efficiency level of the market where they want to invest their funds. For  example,  through  stock prices  they  could  gain better  understanding  of the  company performances more accurately.


This study is intended to contribute to the existing theoretical and empirical literature in stock market  and  economic  growth.  Specifically,  it  aimed  at analyzing  the  dynamics  of stock market  and the economic  growth in Nigeria.  It  incorporated  variables  lacking in previous studies and therefore would help to provide more clarity on the relationship between the two major  variables  of interest.  It  is hoped  that  the  findings  of this  study would  serve as a secondary source of information for future related studies.

General Public

The result  of this  study would  be of immense  benefit  to the general public.  Majority of uninformed  investors,  particularly  individual  investors who are ignorant of the workings of the market would be educated and guided.  It would provide  the needed awareness  among them for greater patronage  of the market. It is the desire of every adult to own a financial investment to depend on during the rainy day.

Business Organizations

This  work  would  be beneficial  to business  organizations,  manufacturing  compames  and financial institutions (insurance companies, banks, etc.). The recommendations  of the study if implemented would help stimulate investments  in the market and this would largely benefit the business organizations as their floatation would be sufficiently subscribed.

Nigerian Economy

The entire economy will benefit in terms of productivity, job creation, economic growth and development.


Our study has some limitations within which our findings need to be interpreted  carefully. The limitations include:

Data unavailability:  This work would  have also conducted  test on the impact  of market concentration on Nigeria’s  economic growth, but some of the annual series on traded shares of the four most capitalized  companies which dominated the market were not available for the study period.  All of them,  with the exception of Nestle Plc.  have not been long in the Nigerian  stock exchange  so as to build  up  a good  sample  size for robust  analyses.  For example, Dangote Plc. which as at February,  2019 had the largest market capitalization with

28.55% just  got listed in October 2010,  whereas GTBank and Zennith were listed in 2004.

The four companies accounted for 54% of market capitalization as at February 2019.

The option of obtaining high frequency series like monthly data (from the four companies) to be able to achieve  a good  sample  size was  extremely  difficult.  The  inclusion of market concentration  in  the  study  could  have  provided  a  more  robust,  dynamic  and  accurate depiction of stock market development.

Further,  this study would have employed a multivariate model that would include exchange rate and inflation rate (as control variables) for volatility test. However,  their monthly data were incomplete (particularly, inflation rate) for the sample period. We place premium  on monthly and daily series for volatility test because it needs high frequency observations to prevent smoothing off the swings.

Additionally,  findings of this study may not be completely generalized because the sample size was restricted  to thirty four years which is just  relatively  large,  (ASI came into full operation in 1984). Sample size statistical tests normally require a large sample size to ensure more precise results. The larger the sample size, the more universal the results. Employing larger samples size could have produced sweeping results.

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