Nigeria Stock Market Development and Economic Growth : A Time Series Analysis (1993 – 2013)

This study examined the impact of stock market development and economic growth; and also examined the direction of causality between stock market development and economic growth in Nigeria. This study applied Johansen co-integration model to evaluate the stock market development and economic growth and causal relationship using four measures of stock market development indices: market capitalization, number of deals, all share index and total value of market transaction. The study established the existence of co-integration for all the stock market development measures. Results obtained for all measures of stock market development indices point to the existence of a positive relationship between stock market development and economic growth except for market capitalization and total value of market transaction. The findings from pair-wise Granger Causality test suggest the existence of a unidirectional relationship between stock market development and economic growth. This entails that the state of development of the economy will determine the development and operations of the stock market. This study also reveals that there is correlation between stock market development and economic growth, via all share indexes, market capitalization, number of deals and total market transaction value. The Nigerian government should therefore create an enabling environment that would involve, amongst other things, putting in place key legislation to cover investment protection, friendly taxation policies and guaranteeing property rights, so as to stimulate investments. In addition, policies to enhance the trading of securities should be encouraged. In fact, the demutualisation of the Nigeria Stock Exchange needs fast-tracking measures. This has the potential of stimulating creation of financial instruments capable of deepen the operations of the Nigerian capital market and consequently improving liquidity