Banking and Finance Project Topics

An Analysis of Impact of Stock Market Development on Economic Growth in Nigeria.

An Analysis of Impact of Stock Market Development on Economic Growth in Nigeria.

An Analysis of Impact of Stock Market Development on Economic Growth in Nigeria.

Chapter One

Objective of the study

The objectives of the study are;

  1. to analyze the dynamic relationship between market capitalization and total value traded
  2. to find out the relationship between turnover ratio and economic growth in Nigeria




The stock market forms an integral part of financial system and serves important functions in an economy by means of providing liquidity for investors Levine (1991) and Bencivenga et al (1996); facilitating savings, mobilization for investment; offering portfolio, diversification opportunities for investors (Deveraux and Smith 1994); helping to convey information about the firms prospect to potential investors and creditors (Greenwood and Joranovic 1990). There is no generally acceptable definition of stock market, various authors have tried to define stock market but none of these definitions has been universally accepted. One of the preferred definitions is Fapohund (1991) who agrees that stock market means so many things. Firstly, it is a place where debts and equity securities (bonds, stocks and shares) of various types are traded openly. Secondly, it is a market for capital mobilization through which funds can be raised by the public companies and government institution on competitive terms from new issue. He went further to say that the facility for trading in existing securities removes the restriction that would have prevented individuals from investing their savings in securities of the available capital funds to diverse uses in the economy. Given the importance of stock market and the understanding of how it can influence economic growth, numerous studies have been conducted on the impact of stock market development on economic growth. Earlier studies carried out in Nigeria used Ordinary Least Squares (OLS) method to estimate the impact of stock market on Economic growth. For example, Osinubi (1998) employed OLS to examine how stock market promotes economic growth. The results indicate that there is a positive relationship between growth and all the stock market development variables used. Augustine and Salami (2010) used OLS to examine the impact of stock market development on long-run economic growth. The regression results showed that stock market size and turnover ratio are positive in explaining economic growth while stock market liquidity coefficient was negative in explaining long-run growth in Nigeria. Olowe, Mathew and Fasina (2011) employed OLS method to analyse the efficiency of capital market on the economy between 1979 and 2008. The findings revealed negative relationship between gross domestic product and market capitalization as well as turnover ratio while all share index is positively related to gross domestic product. Alajekwu and Achugbu (2010) investigated the role of stock market on economic growth from 1994 to 2008. The indices of stock market development are stock market capitalization ratio, value traded ratio and turnover ratio. The study made use of Ordinary Least Square (OLS) technique and the results showed that market capitalization ratio and value traded ratio are negatively correlated with economic growth while turnover ratio is positively correlated with economic growth.





In this chapter, we described the research procedure for this study. A research methodology is a research process adopted or employed to systematically and scientifically present the results of a study to the research audience viz. a vis, the study beneficiaries.


Research designs are perceived to be an overall strategy adopted by the researcher whereby different components of the study are integrated in a logical manner to effectively address a research problem. In this study, the researcher employed the survey research design. This is due to the nature of the study whereby the opinion and views of people are sampled. According to Singleton & Straits, (2009), Survey research can use quantitative research strategies (e.g., using questionnaires with numerically rated items), qualitative research strategies (e.g., using open-ended questions), or both strategies (i.e., mixed methods). As it is often used to describe and explore human behaviour, surveys are therefore frequently used in social and psychological research.




This chapter presents the analysis of data derived through the questionnaire and key informant interview administered on the respondents in the study area. The analysis and interpretation were derived from the findings of the study. The data analysis depicts the simple frequency and percentage of the respondents as well as interpretation of the information gathered. A total of eighty (80) questionnaires were administered to respondents of which only seventy-seven (77) were returned and validated. This was due to irregular, incomplete and inappropriate responses to some questionnaire. For this study a total of 77 was validated for the analysis.


Table 4.2: Demographic profile of the respondents




It is important to ascertain that the objective of this study was to ascertain an analysis of impact of stock market development on economic growth in Nigeria. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of stock market development on economic growth in Nigeria


This study was on an analysis of impact of stock market development on economic growth in Nigeria. two objectives were raised which included; to analyze the dynamic relationship between market capitalization and total value traded and to find out the relationship between turnover ratio and economic growth in Nigeria. A total of 77 responses were received and validated from the enrolled participants where all respondents were drawn from CBN, Abuja. Hypothesis was tested using Chi-Square statistical tool (SPSS).


Our empirical results indicate that economic growth is positively affected by stock market development proxied by market capitalization and value of stock traded ratio to GDP. This supports the argument that the stock market development in developing countries will contribute positively to economic growth.


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