The stock market plays an important role in Nigerian economy in the sense that it mobilizes domestic resources and facilitates savings and investment. It impacts positively on the economy by providing financial resources through its intermediation process for financing long term projects. The main objective of the study is to analyze the effect of stock market on the growth of Nigerian economy.  The data used is a secondary data collected from central bank of Nigeria statistical bulletin The analysis scope covered a period of thirty-four years spanning from 1980-2014. The econometric method adopted is the Ordinary Least square method (OLS), Augumented Dickey Fuller, Unit root test, Cointegration and Error correction model. The variables of the model include Gross domestic product (GDP) as the dependent variable and market capitalization, total new issues and value of listed shares are independent variables. The result show that total new issues and value of listed shares are statistically significant while market capitalization statistically insignificance. This research recommend that there is need to introduce and implement policies that will increase the level and size of Market Capitalization in the Nigerian Stock Market by the government through the Central Bank as increase in Market Capitalization will surely increase fund availability for desired investment which in turn will increase productivity of the Nation. The positive impact of total New Issues is an indication that organizations operating in the country should open access to public for investment and by so doing make returns available to the investors thereby increasing an average investors’ income.













  • Background of the Study

The stock market plays an important role in Nigerian economy in the sense that it mobilizes domestic resources and facilitates savings and investment.  Therefore, to perform this role it must have significant relationship with the economy. The relevance of stock market has assumed a developmental role in global economies following the observable benefit exerted on corporate finance and economic activity. The stock market is viewed as a complex institutions imbued with inherent mechanism through which long term funds of the major sectors of the economy comprising household, firms, and government are mobilized, harnessed and made available to various sector of the economy (Nyong1997). Success in capital accumulation and mobilization for development varies among nations, but it is largely dependent on domestic savings and inflows of foreign capital.

A unique benefit of the stock market to corporate entities is the provision of long-term non-debt financial capital. Through the issuance of equity securities and provision of equity capital, the market enable companies to acquire perpetual capital for development, and avoid over reliance on debt financing, thus improving corporate debt-to-equity ratio (Sylvester and Godfrey 2011).

Though before the establishment of stock market in Nigeria, there was existence of some less formal market arrangement for the operations of the stock market. It was not prominent until the visit of Mr. J.B. Lobynesion in 1959, on the invitation of the federal government, to advice  the role the central bank could play in the development of the local money and stock market. As a follow-up to this, the government commissioned and set up a Barback committee to study and make recommendations on the ways and means of establishing a stock market in Nigeria as a formal market (Alile and Anao 1990).

Capital markets are key elements of a modern market-based economic system as they serve as the channel for flow of resources from the “ savers” of capital to the “borrowers” of capital. Efficient capital markets are hence essential for economic growth and prosperity. With growing globalization of economies, the international capital markets are also becoming increasingly integrated. While such integration is positive for global economic growth, the downside risk is the contagion effect of financial crisis especially if its origin lies in the bigger markets. As for the effect of macroeconomic variables such as money supply and interest rate on stock prices, the efficient market hypothesis suggests that competition among the profit maximizing investor’s impact of macroeconomics. Variables on stock market such as; market capitalization, Total new issues, and value of listed shares will ensure that all the relevant information currently known about changes macroeconomic variables are fully reflected in current stock market, so that investors will not be able to earn abnormal profit through prediction of the future stock markets investments.

Therefore, since investment advisors would not be able to help investors earn above average returns consistently except through access to employer insider information. Stock market is a critical log in the wheel that smoothens the transfer of funds for economic growth. Broadly speaking, stock exchange is expected to accelerate economic growth by increasing liquidity of financial assets, making global diversification easier for investors and promoting wiser investment decisions. In principle, a well functioning stock market may help the economic growth and development process in an economy through growth of savings, efficient allocation of investment resources and alluring of foreign portfolio investments. The stock market encourages savings by providing the household having investable funds, an additional financial instruments which meets their risk preferences and liquidity needs better, it in fact provides individuals with relatively liquid means for risk sharing in investments projects (Agrawalla 2006).

The stock markets capacity to contribute to the development of the economy has been largely impaired by various inadequacies. The market over the years have been characterized by-Lack of depth with few securities-poor liquidity, partly due to inefficiency-Poor infrastructural for secondary market operations-Basically, an  equity market with largely dormant bond market-High transaction costs-Lack of sophisticated product investments and instruments. The market is mainly dominated by traditional instruments such as Bonds and Equities with limited n  derivatives-unfavourable tax regime-Unstable and largely in appropriate in macro- economic environment.

1.2 Statement of the Problem

 Inspite of how efficient and effective the activities of the stock market might be, it will not yield any positive result, if the macroeconomic variables are not controlled. The inflation and deflation must be properly controlled to ensure smooth economic activities in an economy. The Nigerian capital market

is regulator driven there is evidence of regulator obstruction to its process. Various forms of entry restrictions by the market regulator pose to some extent as obstruction to a well functioning market. The Nigerian stock exchange (NSE) should reduce limitation imposed on entry of new members into the market except on legal grounds in which character of the directors are involved. This is because the directors will have charge for the investment of people. More firms should be allowed to participate in the market, it is encouraging that more firms are getting quoted. This generally calls to question the rational behind the new minimum capitalization requirement. Marketing of stocks involves adoption of marketing strategies which comprise a planned and systematic activity aimed at identifying, anticipating and satisfying investors’ stock needs and wants profitably. Oftentimes, investors are agitated by the services rendered by brokers in their facilitating exchange process in the Exchange. There is undue delay in the share registration and delivery system. The securities pricing system is not sufficiently sensitive to changes in the economic circumstances of individual securities. While the exchange may be largely blamed for this, the inexperience or lack of adequate training for some of the stockbrokers may as well be responsible. The investors also complain that stock brokers furnish them with poor or complete absence of information services resulting at times in their purchase of poorly rated or devalued stocks. Marketing strategies employed by many  brokers, especially in persuading their clients to buy or sell certain stocks may be responsible for the above situations, or may be the marketing effort of stock-brokers has nothing to do with the ratings of value and pricing of stocks.

May be the application of inappropriate marketing strategies such as financial public relations in interpreting and analyzing stock trends to investors is a problem faced by stock-brokers in their effort to market stocks.

Given the number of years since the Nigerian Stock Exchange has been established and the substantial financial resources available in the country, coupled with the

Existing institutions, but one can claim that the entire spectrum of the capital market has not been sufficiently active, especially when compared with the capital

Unit of similar or lesser agies. The units in other developing countries. The factors responsible for this could be identified to include: High cost of transaction, lack of transparency, poor economic performance etc. also, (Ekesiobi et al.2016) note that Nigerian and other developing nations in Africa are characterized by inadequate capital formation due to the vicious cycle of low productivity, low income and low savings. They reveal that per capital income are usually low in developing countries and the propensity to consume is very high, which leads to low desire to save and invest and had negative implications for private capital formation in Nigeria.

Despite the popular belief that democracy promotes economic activities which in turn engenders economic growth, the growth of the capital market in Nigeria is still very small in relation to the size of the economy (Echekoba et al. 2013). Developed economies had explored both channels through which resources mobilization affects economic growth and development.

The stock market or its establishment was expected to provide appropriate machinery to facilitate further offering to stock and shares to the general public in the private sector of the economy, encourage the investment of savings so quickly as it is clear that stock and shares are readily available . However, any doubt the importance of domestic capital market in ensuring a balanced economic growth should have been dispelled following the experience of most countries since 1980.

1.3 Research Question

1. What is the impact of market capitalization on the growth of Nigerian economy?

  1. What is the effect of Total new issues on the growth of Nigerian economy?
  2. What is impact of value of listed shares on the growth of Nigerian economy?

1.4 Objectives of the Study

The central objective of this study is to analyze the economic impact of stock market on Nigerian economy. The specific objectives include;

  1. To examine the effect of market capitalization on the growth of Nigerian economy.
  2. To assess the effect of Total new issues on the growth of Nigerian economy.
  3. To evaluate the value of listed shares on the growth of Nigerian economy.






1.5 Research Hypotheses

H01: Market capitalization has no significant impact on the gross domestic product (GDP) of the Nigerian economy.

H02: The Total new issues has no significant impact on gross domestic product (GDP) of the Nigerian economy.

H03: The value of listed shares has not significantly impacted on the gross domestic product (GDP) of the Nigerian economy.

1.6 Significance of the Study

The significance of an efficient and well functioning stock market in spurring economic growth has been well emphasized in this research. Given that stock market provides some services that ginger economic growth, the significance of this study cannot be overemphasized as it goes a long way to explore the causal relationship between stock market performance and economic growth in Nigeria. The study will be useful to the government of this nation, participants or operators in the stock market and other stakeholders as it will provide policy

recommendations on the basis of its findings. This study is also very important at this level because the Nigerian stock market which witnessed a boom in the last few years is now experiencing a meltdown. Thus, it is expected that this study would complement the effort of government and policy makers in reviving the Nigerian stock market and restoring the confidence of shareholders and other participants in the market. More so, the study would further add to the existing literature on stock market performance and economic growth in Nigeria.


1.7 Scope of the Study

This work is a study of economic impact of stock market on the Nigerian economy. The study employs empirical evidence from both stock market using the Nigerian stock exchange and Nigerian economy as whole. The choice is made out of the researcher’s interest in the given country’s stock market and economic circumstances. The period covered by the research is thirty-four (34) years period 1980-2014. The availability of uniform data on the variables informed the researcher’s choice of the period of analysis.

1.8 Limitations of the Study

 This study is limited by the following factors;

  1. Paucity of materials: Materials for this study were not adequate which could not allow for an in-depth study.
  2. Inaccessibility of data: Difficulty in accessing data for this study was yet another limitation.
  3. Financial constraint: Lack of adequate funds on the part of the researcher constituted another problem.
  4. This study was also constrained by inadequate time on the part of the researcher, since attention had to be given to other course work or academic related exercises

1.9 Organization of the Study

The study is divided into five (5) chapters and organized as follows:

Chapter one form the introduction part, this is where the main theme of the research is given.

Chapter two is the literature review of related literature of the impact of capital market on the economic growth of Nigeria.

Chapter three forms the research methodology.

Chapter four is the data analysis while chapter five includes the summary, conclusion and recommendations.


1.10 Definition of Terms

Barback committee: This is a committee setup to examine the ways and means of fostering a share market in Nigeria.

Spurring: Anything that inspires or motivates something

Portfolio Investment:  A collection of investments owned by an investor, you can have as little as one stock in a portfolio to an infinite amount of stocks

Overdraft:  An amount of money that is spent by someone using a bank account that is more than the amount available in the account.