The Stock Market and Economic Growth in Nigeria: An Empirical Investigation

This study is a contribution to the growing debate on stock market-growth nexus. It examines critically and empirically the causal linkage between stock market development and economic growth in Nigeria between 1970 and 2004. The indicators of stock market development used are market capitalization ratio, total value traded ratio and turnover ratio while the growth rate of gross domestic product is used as a proxy for economic growth. Using the Granger Causality (GC) test, the empirical evidence obtained from the estimation process suggests a bidirectional causality between turnover ratio and economic growth; a uni-directional relationship from market capitalization to economic growth and no causal linkage between total value traded ratio and economic growth. The behaviour of these findings is an indication that the result of the causality test is sensitive to the choice of variables used as a proxy for stock market development. Overall, the result of the GC test seems to suggest that stock market development drives economic growth.