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This study examines the impact of the Nigerian capital market on economic growth from the period of 1991-2010. The economic growth was proxied by Gross Domestic Product (GDP) while the capital market variables considered include; Market Capitalization (MCAP), All Share Index (ASI), Value of Transactions (VTS), and Total New Issues (TNI). Secondary data was collected from Security and Exchange Commission reports, National Bureau of statistics and Central Bank of Nigeria Statistical Bulletin. Descriptive statistics, Pearson correlation and multiple regression analysis are used to analyze the data. The result shows that, Gross Domestic Product (GDP) has a positive relationship with Market Capitalization, All Share Index, Value of Transactions, and Total New Issues. It is recommended therefore that that government should put up measures to build up investors’ confidence in the capital market; also the regulatory authority should initiate policies that would encourage more companies to access the market.











1.0 Introduction                                                                                                                      1

1.1 Background to the Study                                                                                                  1

1.2 Statement of the Problem                                                                                                 4

1.3 Objectives of the Study                                                                                                    5

1.4 Research Hypotheses                                                                                                        6

1.5 Significance of the Study                                                                                                 6

1.6 Scope of the Study                                                                                                           7



2.1 Introduction                                                                                                                      8

2.2 Conceptual Issues                                                                                                                         8

2.2.1 The Concept of Stock Market                                                                                        8

2.2.2 Overview of the Nigerian capital market                                                                      11

2.2.3 Function of Nigerian Stock Market                                                                               12

2.2.4 The Nigerian Security and Exchange Commission                                                       13

2.2.5 The Nigerian Stock Exchange                                                                                       15

2.2.6 The Concept of Economic Growth                                                                                15

2.3 Review of Empirical Studies                                                                                            16

2.3.1 Concept of Stock Market and Economic Growth                                                         24

2.3.2 Impact of stock market on economic growth in Nigeria                                               25

2.4 Theoretical framework                                                                                                     26

2.4.1 Demand following theory                                                                                              27

2.4.2 Endogenous Growth Theory                                                                                          27

2.4.3 Vicious cycle of poverty                                                                                                28

2.4.4 Big Push Theory                                                                                                            28

2.4.5 Unbalanced Growth                                                                                                       29

2.4.6 Growth Theory                                                                                                               30

2.4.7 Efficient Market Theory                                                                                                30



3.1 Introduction                                                                                                                      33

3.2 Research Design                                                                                                               33

3.3 Sources and Methods of Data Collections                                                                        34

3.4 Techniques of Data Analysis                                                                                            34

3.5 Measurement of Variables                                                                                                35



4.1 Introduction                                                                                                                      37

4.2 Results of Descriptive Statistics and Correlation Analysis                                              37

4.3 Regression Analysis                                                                                                         39

4.3.1 Stock Market Capitalization and Economic Growth                                                     41

4.3.2 All Share Index and Economic Growth                                                                        42

4.3.3 Value of Transactions and Economic Growth                                                              42

4.3.4 Total New Issues and Economic Growth                                                                      43



5.1 Summary                                                                                                                           44

5.2 Conclusion                                                                                                                        45

5.3 Recommendations                                                                                                            46

Reference                                                                                                                                47

Appendix                                                                                                                                52




1.1 Background to the study

The stock market plays a major role as an economic institution which enhances the efficiency in capital formation and allocation. It enables both corporations and the government to raise long-term capital which enables them to finance new projects and expand other operations. The performance of the economy is boosted when capital is supplied to productive economic units. Furthermore, as economies continue to develop additional funds are therefore needed to meet the rapid expansion and the stock market therefore serves as an appropriate tool in the mobilization and allocation of savings among competing uses which are critical to the growth and efficiency of the economy. A stock market can also be called a capital or securities market as it encompasses the stock exchange. It is in this light that the stock exchange market acts as a medium for economic performance in the sense that, it assists to allocate the necessary capital needed for the consistent growth of an economy. Alile (1997) further argued that the determination of the overall growth of an economy depends on how efficiently the stock market performs in its allocative functions of capital. When the stock market mobilizes savings, it simultaneously allocates a larger portion of the same to firms with relatively high prospects as indicated by their returns and level of risk.

Stock market serves as a link where medium and long term fund could be raised to meet various developmental projects. The stock market plays a vital role in the mobilization and channeling of medium and long term capital to the economy. Levine and Zervos (1998) find that stock market development is playing an important role in predicting future economic growth in underdeveloped countries like Nigeria, the development and growth of stock markets have been widespread in recent times. Despite the size and illiquid nature of stock market, its continued existence and development could have important implications for economic activity. For instance, Pardy (1992) has noted that even in underdeveloped countries capital markets are able to mobilize domestic savings and able to allocate funds more efficiently. Thus, stock markets can play a role in inducing economic growth in underdeveloped country like Nigeria by channeling investment where it needed from public, Mobilization of such resources to various sectors certainly helps in economic development and growth.

Historically, the financial sector in the developing world has been primarily bank based. But, in recent years, there has been a gradual shift to a more holistic approach which, alongside the banks, seeks to develop the securities market. Some of the strength of the securities market which makes them the focal point of the shifting emphasis is their ability to:

  • mobilize long term savings for financing long tenure investments;
  • provide risk capital (equity) to entrepreneurs;
  • encourage broader ownership of firms; and
  • Improve the efficiency of resource allocation through competitive pricing mechanisms.
  • Provision of alternative sources of finance other than taxation and foreign loan to fund public projects. (Levine and Sara 1998)

The development of securities market could help to strengthen corporate capital structure (i.e. the composition of the capital of the firms) and efficient and competitive financial system. The stock market encourages savings by providing households with an additional instrument which may better meet their risk preferences and liquidity needs.

On the other hand Economic Growth is the percentage increase in Gross Domestic Product (GDP) or Gross National Product (GNP) on year to year basis. It is a sustainable increase in per-capital national output or net national product over a long period of time. The rate of increase in total output must be greater than the rate of population growth (Dwivedi, 2008). Chinwuba & Amos (2011) define economic growth as an increase of the national income or total volume of production of goods and services of a country accompanied by improvements in the total standard of living of the people. Economic growth in a modern economy hinges on an efficient and effective financial sector that pools domestic savings and mobilizes productive investments. Productive projects may remain redundant where absence of an efficient set of financial institutions exits. Investment that promotes economic growth and development requires medium and long term funding, this can be seen clearly in Nigeria when the government in the past initiated many developmental policies since independence among such policies they are: – structural adjustment programmed (SAP), vision 2010, vision 2020, millennium development goals (MDGs), national economic empowerment development strategy (NEEDS), (SEED), and (LEED) by state and local government respectively. The effective implementation of all these programmed depend on the availability of long term fund; therefore, stock market serves as a link where all these funds could be raised to achieve developmental goal.. Stock markets are vital component for economic development as it provides companies with a platform to raise long-term capital and also provide investors with a forum for investing their surplus funds. Stock markets therefore encourage investors with surplus funds to invest them.

The link between of stock market performance and the economy is that the presence of stock markets would mitigate the principal agent problem, thus promoting efficient resource allocation and growth (Adjasi and Biekpe, 2006).

1.2 Statement of the Problem

Stock market growth and development has been a topic of intensive Theoretical and empirical studies such as: Demirguc-Kunt and Levine, Levine and Zervos, Chen et al.etc, Much of the literature has emphasized greatly on the role of the banking sector as the only organized capital market in most developing countries, and neglecting the potential impact of stock markets in efficient capital allocation and risk sharing in a liberalized financial market.

The impact of the stock market on the growth and development of the economy has not been sufficiently felt (Babalola, 2007) as a result of some factors such as small size of the market, problem of illiquidity of the market. Slow performance of security market, lack of effective underwriting, delay in delivery of share certificate, double taxation, problem of macro-economic instability among others. Also many criticisms have been leveled against the capital market’s inability to serve the purpose of which it was established (Pat Donwa, 2010).However, Osaze (2000), Ekundayo (2002), Oyefusi and Mogbolu (2003), Equakun (2005), and Adelegan (2005) argue that capital market can enhance economic growth of any nation. Works on stock market are done globally but not much in Nigeria.

Most recent literatures on the Nigeria stock market e.g. (Nurudeen 2009, okoye and nwisienyi 2013,) have recognized the tremendous performance the market has recorded in recent times. However, the vital role of the stock market in economic growth and development has not been empirically investigated thereby creating a research gap in this area.

It is in the light of the foregoing statement of problem this study raises and intends to provide answer to the following research questions.

  • What is the relationship between Market Capitalization and Economic Growth in Nigeria?
  • What is the relationship between All Share Index and Economic Growth in Nigeria?
  • What is the relationship between Value of Transactions and Economic Growth in Nigeria?
  • What is the relationship between Total New Issue and Economic Growth in Nigeria?


1.3 Objectives of the Study

The general or broad objective of this study was to analyze the correlation between the stock market performance and economic growth in Nigeria. From the above mentioned broad objective, the specific objectives are as follows:

  • To determine the nature of the relationship between Market Capitalization and Economic Growth in Nigeria.
  • To examine the nature of relationship between All Share Index and Economic Growth in Nigeria.
  • To ascertain the nature of relationship between Value of Transactions and economic growth in Nigeria.
  • To evaluate the nature and extent of influence of Total New Issue on Economic Growth in Nigeria.

1.4 Research Hypotheses

Based on the objective set above, this study will be guided by the following testable hypotheses:

H1: There is significant relationship between Market Capitalization and Economic Growth in Nigeria.

H1: There is significant relationship between All Share Index and Economic Growth in Nigeria.

H1: There is significant relationship between Value of Transactions and Economic Growth in Nigeria.

H1: There is significant relationship between Total New Issue and Economic Growth in Nigeria.

1.5 Significance of the Study

This study will serve as a measure guide towards improving knowledge about the performance and effect of the stock market on economic growth of Nigeria. For policy makers, this research will highlight and recommend feasible, practicable and workable solution to problems associated with stock market and ways to improve operations and activities of the stock market. This will go a long way in achieving the desire economic growth. Another significant of this study from policy maker’s point of view is, well established stock markets can serve as indicator of economic growth. The main importance of this study is that it will provide policy recommendations to policy-makers on ways to improve operations and activities of the capital market.

However, it will contribute to existing literature on the subject matter by investigating empirically the role, which the stock market plays in the economic growth of the country. The study will also serves as a yardstick for determining the extent to which the stock market is vibrant. It will beneficial to students by acquainting them with knowledge of stock market performance and economic growth in Nigeria. Also to investors who has invest or wishes to Invest seeking for financial aid, stock market can serves as a place to meet their financial problems. Lastly it will be beneficial to policy makers in stabilizing the nation economy. It could also be useful for subsequent researcher in this field.

1.6 Scope of the Study                     

The scope of this research work will cover the stock market performance and its activities towards economic growth.  Economy is a large component with a lot of diverse and sometimes complex parts; this research work will only looked at a particular part of the economy i.e. (the financial sector). This work will not cover all the facts that make up the financial sector, but shall focus only on the capital market and its activities as it impacts on the Nigerian economic growth. The empirical investigation of the stock market performance on the economic growth in Nigeria was restricted to the period between 1991 and 2010 a period of twenty (20). The period under review was the period where the financial crises hit global market with Nigeria inclusive.