The study investigated the impact of stock market activities on economic growth in Nigeria. The stock market plays a vital role in the economy of both developed and developing economic growth in Nigeria, to ascertain the impact of share price index on Nigeria’s economic growth and to evaluate the impact of turnover on the Nigerian economic growth. To achieve the objectives of the study, ex-post facto research design data was used countries. It has been asserted that there is a direct link between capital market activities and economic growth of a nation. From past trends in major economics of the world, there is also an observable link between stock market activities and economic stability. However, the major objectives of the study are to ascertain the impact of market capitalization on the In testing the hypotheses, ordinary least square regression analysis was used. The findings revealed that Share price index, market capitalization and market turnover has a significant impact on Nigeria economic growth The researcher recommends that The first and foremost task in increasing the demand for securities is for stock exchange market to embark on public enlightenment programmes such as lectures, symposia, workshops and seminars in order to sensitize the public on the roles of the stock market and benefits they stand to gain in availing themselves of these opportunities. The researcher further recommends that stock market regulators should therefore address policy issues that are capable of boosting the investors’ confidence through improved policy formulation and creation of awareness. When confidence is restored the total value traded will increase significantly thus raising stock market capitalisation.
1.1. Background of the Study
The stock market plays a vital role in the economy of both developed and developing countries. It has been asserted that there is a direct link between capital market activities and economic growth of a nation (Nwankwo, 2009; Olowookere and Osunubi, 2010, Kalu, 2011; Nwachukwu, 2013). From past trends in major economics of the world, there is also an observable link between stock market activities and economic stability. Instability in the stock market operations is an indication of instability in an economy. The link between stock market and economic growth as an economic phenomenon is also applicable to the Nigeria economy (Nwachukwu, 2013).
The Nigeria capital market has undergone tremendous reforms in recent years in order to stimulate its activities. Among these were the introduction of the Central Securities Clearing System (CSCS) an automated clearing, settlement and delivery system aimed at easing transactions and fostering investors’ confidence in the market. Equally important was the linking of performance information on the Nigerian Stock Exchange to Reuters International System in order to disseminate relevant market information players in the market (Adekunle, Amed, Bola, 2014).
Following the reforms carried out between 2003 and 2008 in the Nigeria financial sector, which led to quite a number of public issues by many banks, activities of the stock market deepened and public awareness and involvement increased significantly. This development indicated the existence of an interrelationship between banking sector reform and trading activities of the capital market which had a positive effect on economic growth.
As a major segment of the Nigeria financial system, the activities in the Nigeria capital market have evolved and grown in tempo with growth of the country’s economy. The market has been predominantly equity-driven, with the banking sector making up a greater proportion of the total market capitalization sequel to the 2003 banking sector reforms. The market enjoyed a decade of unprecedented growth, driven principally by the reforms. Market capitalization (MC) rose by 318.3 percent, from N2.9 trillion in December 2005 to N12.13 trillion in March 2008, while the All-Share Index (ASI) also rose by 161.6 percent rising from 24,085.8 in December 2005 to 63,0165.56 share in March 2008 (NSE, 2009). These increases in Nigeria capital market activities as reflected in the market indicators performance translated into remarkable growth of the Nigeria economy with an average growth of 10.03 percent between 2007 and 2010 (CBN,2012).
Alabede (2014), points out that the role played by the stock market in the economic growth and development of a nation is recognized in the world all over. Through the mechanism of the stock market, long term funds are mobilized and channeled to productive investments. Usmen (1998) opined that the indispensable nature of capital market activities in any economy rises from the two major functions it performs. Mobilizing and channeling of long term investible funds from the surplus sector to the deficit sector of the economy, and providing a liquidity platform for market players to buy and sell instruments.
In view of the foregoing discussion, this research was initiated to study how stock market activities have impacted on economic growth of Nigeria between 2000 and 2016.
1.2 Statement of the Problem
The Nigeria stock market is one of the major avenue for sourcing investment funds to finance long-term project in the country. However, the Nigeria capital market is not as vibrant as other markets of advanced economies. This has led the Nigerian government to initiate a number of reforms over the years in order to increase the volume of activities in the market. Despite these reforms aimed at increasing stock market activities in order to accelerate grassroots economic growth, the market seems to be faced with various constraints which hinders its activities and performance and as a consequence retards the rate of economic growth and development of the economy (Adam, Sanni and Francis, 2013).
According to Bola (2013) some of the factors constraining the Nigeria stock market activities include high cost of raising funds, low public awareness on the benefits of investing in the stock market, stringent listing conditions for companies, prevalence of fraud by stockbrokers, long period of clearing /verification of certificates and trading, insecurity of invested funds, etc.
The major indicators of stock market activities are market capitalization, all share price index, and daily stock turnover.From ₦3, 291, 78 billion in 2000, gross domestic product rose to ₦5, 619, 31.6billion in 2005. From ₦5, 958, 21.64billion in 2006 gross domestic product rose to ₦7, 755, 25billion in 2010. From ₦8, 341, 61.83billion in 2011, the gross domestic product rose to ₦7, 945, 98.07billionin 2015 (Abdullahi, 2016).
Also, in 2000, all share price index was 8111.0 and rose to 24085.8 in 2005, In 2006, All share price index was 33189.30 and rose to 31450.80 in 2010. In 2011, All share price index was 208727.20 and rose to 487109.5 in 2015 (Abdullahi, 2016).
For market capitalization in 2000 was 1,036,080 billion and rose to 2,814,846 billion in 2005, in 2006 market capitalization was 3,937,311billion and rose to 13,066,266 billion in 2010. In 2011 market capitalization was 15,365,151 billion and rose to 26,710,915 billion in 2015.This rise and fall of the Nigerian stock market indicators may be as result of macroeconomic instability in the country. Also, the problem of the macroeconomic instability in country has continued to be a hindrance in the development of the Nigerian stock market and this has had an adverse effect on the economic growth of Nigeria over the years(Abdullahi, 2016).The activities of the stock market create multiplier effect that spill over into the economy to stimulate economic growth. It becomes important to investigate the impact of stock market activities, precisely, market capitalization, all share price index and market turnover on economic growth in Nigeria .
The current poor performance of the stock market has made economists to raise alarm that the country is facing an economic recession. This has created a problem for holders of stock who are trapped because they cannot sell their shareholdings for cash to meet their domestic needs. When this occurs, stockholders loss confidence in the market and foreign portfolio investment are withdraw abroad which have a negative impact on economic growth of the country (Donwa and Odia, 2017).
Finally, most of the studies carried out on the impact of stock market activities such as Bola (2013),(Donwa and Odia, (2017) did not articulate clearly the transmission channel through which capital market activities impact on economic growth. As a consequence, their models were not specified adequately to isolate how each activity in the stock market stimulate economic growth. Thus, their empirical results were too general in nature to provide a basic for specific policy proscriptive on how to stimulate economic growth through activities of the stock market
- Research Questions
- To what extent does market capitalization impact on the economic growth in Nigeria?
- What is the impactof allshare price index on Nigeria’s economic growth?
iii. What is the impact of turnover on the Nigerian economic growth?
- Objectives of the Study
The broad objective of the study is to examine the impact of Stockmarket activities on economic growth in Nigeria between 1981 and 2016.
The specific objectives are;
i.To ascertain the impact of market capitalization on the economic growth in Nigeria
- To ascertain the impact of share price index on Nigeria’s economic growth
iii. To evaluate the impact of turnover on the Nigerian economic growth
1.5 Research Hypotheses
The following hypotheses will be stated in null form;
H01: Market capitalization has no significant impact on economic growth in Nigeria
H02: Share price index has no significant impact on Nigeria’s economic growth
H03:Market turnover has no significant impact on the Nigerian economic growth.
1.6 Scope of the Study
The research work will focus on the impact of stock market activities on economic growth in Nigeria between 2000 and 2016. This period was selected for the study because within it there has been two major incidence of stock market depression in Nigeria. The first one was between 2008 and 2010 when the global economic meltdown fed into the Nigeria financial sector and resulted in free fall of share prices in the Nigeria Stock market. The second one was between 2015 and 2017 when the emerging economic recession in Nigeria led to serious depression in the activities in the Nigeria stock Market.
- Significance of the study
The study will be of immense importance to many group;
To policy marker;the policy makers will benefit from the findings and recommendations of the study, as the research workwill form part of the decision making process. Hence it will aid the government in developing new policies that will enhance the growth of the Nigeria Stock Market.
To Government:This research work will assist the Government in implementing policies that will help growth of the Nigeria Stock Market.
The operators of the Nigeria Stock market:The operators will use the findings and recommendations of the study to identify their shortcomings and what is expected of them from the public and governmentResearchers and students: Researchers and students interested in a similar field of study in future will find this work useful conceptual guide and reference material.
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