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The pivot of this study is an investigation into the causality between economic growth and stock market in Nigeria, one should note that although this study has been carried out in other countries, it is a relatively virgin ground for research in Nigeria. In order to successfully carry out this research, secondary data were used. The source for secondary data includes the use of textbooks, journals, use of the internet and the use of past projects. The data is based on past series data compiled from 1984-2009, and was processed or analysed using the granger casuality test which include sub-tests like the unit root test, the granger causality test and the co-integration test were used to determine whether or not one variable is the cause of the other (i.e. economic growth on stock market prices) and vice versa, or neither. The result of the analysis is based on the panel data revealed feedback that there is little or no causality relationship between economic growth and the stock market in Nigeria. Reasons for this are shown in this work.




The stock market is an economic institution, which promotes efficiency in capital formation and allocation. The stock market enables governments and industry to raise long term capital for financing new projects and expanding and modernizing industrial/commercial concerns. If capital resources are not provided to those economic areas, especially industries where demand is growing and which are capable of increasing production and productivity, the rate of expansion of the economy often suffers. 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, companies acquire perpetual capital for development. Through the provision of equity capital, the market also enables companies to avoid over-reliance on debt financing, thus improving corporate debt to equity ratio. The existing literature clearly shows that developed economies have explored the two channels through which resources mobilization affects economic growth and development money and capital markets (Samuel, 1996; Dermiguc-Kunt and Levine, 1996). This is however not the case in developing economies where emphasis was placed on money market with little consideration for capital market (Nyong, 1997).

Since the introduction of Structural Adjustment Programme (SAP) in Nigeria, the country’s stock market has grown very significantly (Awie, 1996; Soyede, 1990). This is as a result of deregulation of the financial sector and privatization exercises, which expose investors and companies to the significance of the stock market. Equity financing became one of the cheapest and flexible sources of finance from the capital market and remain a critical element in the sustainable development of the economy (Okereke-Onyiuke, 2000).

Though stock market is growing, it is however characterized by complexities. The complexities arise from trends in globalization and increased variety of new instrument being traded: equity options, derivatives of various forms, index futures etc. However, the central objectives of the stock exchanges world wide remain the maintenance of the efficient market with attendant benefit of economic growth (Alile, 1997). The link between stock market performance and economic growth has often generated strong controversies among analysts based on their study of developed and emerging markets (Samuel, 1996; Dermiguc-Kunt and Levine, 1996; Akinfesi, 1987; Levine and Zervos, 1996; Obadan, 1998; Onosode, 1998; Emenugaa, 1998; Osinubi, 1998).

According to Nyong (1997) the financial structure of a firm, that is, the mix of debt and equity financing, changes as economies develop. The tilt is however, more towards equity financing through the stock market. As economies develop, more funds are needed to meet the rapid expansion. The stock market serves as a veritable tool in the mobilization and allocation of savings among competing uses which are critical to the growth and efficiency of the economy (Alile, 1984).

The determination of the overall growth of an economy depends on how efficiently the stock market performs its capital allocation functions. As the stock market mobilizes savings, concurrently it allocates a larger proportion of it to the firms with relatively high prospects as indicated by its rate of return and level of risk. The importance of this function is that capital resources are channeled by the mechanism of the forces of demand and supply to those firms with relatively high and increasing productivity thus enhancing economic expansion and growth (Alile, 1997). Given that the stock market provides some services that ginger-economic growth, this study therefore, empirically investigates the relationship between stock market development and economic growth in Nigeria covering the period 1984 to 2008.


This research aim at determining the relationship if any between economic growth and the stock market one cannot doubt that there indeed exists a viable relationship between the capital market and economic growth of a country. Thus, the problem of this research is to determine the extent of the relationship between the capital or stock market in Nigeria and economic growth whether positive or negative.


Specifically, the broad objectives of the study seeks to determine the relationship between the economic growth and the stock market in Nigeria. Other implicit objective guiding the study are as follows:

  • To empirically estimate the nature of relationship between the stock market and economic growth in Nigeria.
  • To assess the contribution of NSE to Economic growth in Nigeria.
  • To capture the impact of capital formation and economic growth.

Hypotheses are theoretical speculations that are logically based on available data of the research. Therefore, this study is guided by the following hypothesis:

  • Null hypotheses H0: There is no significant relationship between stock prices and economic growth in Nigeria.
  • Null hypotheses H0: There is no impact of capital formation on economic growth.

Due to our growing interest in the activities of the stock market and how it affects our everyday life, this paper will show if there is a direct or indirect relationship between economic growth and the stock market in Nigeria and to further prove whether this relationship is positive or negative. It could also be useful to the government to be able to plan a budgetary process and other fiscal obligations. It could also be useful to monetary authorities in making monetary policy as regards the supply of money so as to control inflationary trend in Nigeria.


This study covers the period 1984 to 2008. This is because the stock indexes are based on a time series scale and were not adequately documented or recorded till 1984. And also, due to the global economic downturn that had an effect on the Nigeria economy between the period of the research till 2008. Hence this study will capture this happening in the Nigerian economy.


All the data and information used in the study are secondary in nature, Central Bank of Nigeria (CBN) publications, journals, textbooks and research works, the internet, IMF/World Bank publications etc. In order to analyse the data, both economic and statistical method were used; time series estimate were obtained using an ordinary least square (OLS) methodology which included tests for stationarity and co-integration. Tables and graphs were also employed in order to capture the impact of capital formation and economic growth.


The study is organized into five chapters as follows: chapter one provides the background to the study, stating its objectives, hypotheses, the scope of the study and the limitation of the study. A review of related literature would be carried out in chapter two. The focus of chapter three is the research methodology with emphasis on model specification, estimation techniques, analytical tools, data collection and data requirements chapter four will concentrate on data analysis as well as the various data presentation techniques to be used. The summary and conclusions from the study, recommendations offered and suggestions for further studies will be covered in chapter five.