The Role of Stock Market Development on Economic Growth in Nigeria: A Time Series Analysis

Abstract

This study investigated the role of stock market development on economicgrowth of Nigeria using a 15-year time series data from 1994-2008. Themethod of analysis used is Ordinary Least Square (OLS) techniques. Thestudy measures the relationship between stock market development indicesand economic growth. The stock market capitalization ratio was used as aproxy for market size while value traded ratio and turnover ratio were usedas proxy for market liquidity. The results show that market capitalization andvalue traded ratios have a very weak negative correlation with economicgrowth while turnover ratio has a very strong positive correlation witheconomic growth. Also, stock market capitalization has a strong positivecorrelation with stock turnover ratio. This result implies that liquidity haspropensity to spur economic growth in Nigeria and that market capitalization influences market liquidity. We should view with caution the notion that stock market size is not significant for economic growth since multicollinearity exists in the data used for this analysis. The government should make policies that boost the interest of domestic investors in Nigeria as this might spur investors’ interest and boost stock market activity.

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