Stock Market Development And Economic Growth In Nigeria Economics Essay

Stock market development has an cardinal function to play in economic development. Shahbaz, et Al ( 2008 ) argue that stock market development is an of import wheel for economic growing as there is a long-term relationship between stock market development and economic growing. Stock market development has the consecutive impact in corporate finance and economic development.

A Gerald ( 2006 ) states that stock market development is indispensable because fiscal intermediation supports the investing procedure by mobilising family and foreign nest eggs for investing by houses. It ensures that these fundss are allocated to the most productive usage and spreading hazard and supplying liquidness so that houses can run the new capacity expeditiously. A turning organic structure of literature has confirmed the importance of fiscal system to economic growing.

Fiscal markets, particularly stock markets, have grown significantly in developed and developing states over the last two decennaries. Claessens, et Al ( 2004 ) states that several factors have aided in their growing, significantly improved macroeconomic basicss, such as more pecuniary stableness and higher economic growing. Specific capital markets reforms, such as denationalization of state-owned endeavors, fiscal liberalisation, and an improved institutional model for investors, have further encouraged capital markets development.

Similarly Mishkin ( 2001 ) affirm that a well-developed fiscal system promotes investing by placing and financing moneymaking concern chances, mobilising nest eggs, apportioning resources expeditiously, assisting spread hazards and easing the exchange of goods and services. From the position point of Sharpe, et Al ( 1999 ) , stock market is a procedure through which the dealing of fiscal assets with life span of greater than one twelvemonth takes topographic point. Financial assets may take diverse signifiers runing from the long-run authorities bonds to ordinary portions of assorted companies.

Stock market is a really critical component of capital market where the portions of assorted houses are traded Trading of the portions may take topographic point in two different signifiers of stock market. When the issue house sells its portions to the investors, the dealing is said to hold taken topographic point in the primary market but when already issued portions of houses are transferred/traded among investors the dealing is said to hold taken topographic point in the secondary market. Stock markets are really of import because they play a major function in the economic system by imparting investing where it is needed and can be put to outdo ( Liberman and Fergusson, 1998 ) . The stock market is working as the conduit through which the populace nest eggs are channelized to industrial and concern endeavors.

Mobilization of such resources for investing is surely a needful status for economic return off, but quality of their allotment to assorted investing undertakings is an of import factor for growing. This is exactly what an efficient stock market does to the economic system ( Berthelemy and Varoudakis, 1996 ) .

A Earlier research focal point on the function of the banking sector in the economic growing of state. In the past decennary, the universe stock markets surged, and emerging markets accounted for a big sum of this roar ( Demirguc-Kunt and Levine ( 1996a ) . A Recent research has begun to concentrate on the linkages between the stock markets and economic development. New theoretical work shows how stock market development might better long-term economic growing and new empirical grounds supports this position. Demirguc-Kunt and Levine ( 1996a ) , Singh ( 1997 ) , and Levine and Zervos ( 1998 ) find that stock market development is playing an of import function in foretelling future economic growing. In developing state like Nigeria the development and growing of stock markets have been widespread in recent times. Despite the size and illiquid nature of stock market, its continued being and development could hold of import deductions for economic activity.

For case, Pardy ( 1992 ) has noted that even in less developed states capital markets are able to mobilise domestic nest eggs and able to apportion financess more expeditiously. Thus stock markets can play a function in bring oning economic growing in less developed state like Nigeria by imparting investing where it needed from public.A Mobilization of such resources to assorted sectors surely helps in economic development and growing. Stock market development has assumed a developmental function in planetary economic sciences and finance because of their impact they have exerted in corporate finance and economic activity. The function of fiscal system is considered to be the key to economic growing ( Neupane, et. Al. 2006 ) .

Paudel ( 2005 ) states that stock markets, due to their liquidness, enable houses to get much needed capital rapidly, therefore easing capital allotment, investing and growing. Stock market activity is therefore quickly playing an of import function in assisting to find the degree of economic activities in most economic systems.

Tuladhar ( 1996 ) states that fiscal markets are catalyst in the development of economic system. The survey farther added that developed economic systems have extremely sophisticated fiscal establishments. Over the past decennary, many developing economic systems have established capital markets as they moved towards more broad economic policies. These emerging markets have shown extraordinary growing with really high volatility, which have attracted many investors into these markets. This survey will try to delve out the empirical grounds in the context of developing states sing the function of stock market development on economic growing.

1.2. Statement of the Problem

A In the last two decennaries, the nexus between fiscal intermediation and economic growing is a topic of high involvement among faculty members, policy shapers and economic experts around the universe. There have been efforts to through empirical observation measure the function of stock market and economic growing. The nexus between stock market and growing has varied in methods and consequences. There exists two contentions in the anticipations.

Adjasi and Biekpe ( 2005 ) found a important positive impact of stock market development on economic growing in states classified as upper middle-income economic systems. In the same manner, Chen et Al ( 2004 ) elaborated that the link between stock returns and end product growing and the rate of stock returns is a prima index of end product growing Arestic et Al. ( 2001 ) utilizing time-series on five industrialised states besides indicate that stock markets play a function in growing. Assorted surveies such as Spears, ( 1991 ) ; Levine and Zervos, ( 1998 ) ; Atje and Jovanovic, ( 1993 ) ; Comincioli, ( 1996 ) ; Levine and Zervos, ( 1998 ) ; Filer et Al, ( 1999 ) ; Tuncer and Alovsat, ( 2001 ) . Levine and Zervos ( 1995 ) and, Demirguc-Kunt ( 1994 ) has supported the position.stock markets promote economic growth..With well-functional fiscal sector or banking sector, stock markets can give a large encouragement to economic development ( Rousseau & A ; Wachtel, 2000 ; Beck & A ; Levine, 2003 ) . Bahadur and Neupane ( 2006 ) concluded that stock markets fluctuations predicted the future growing of an economic system and causality is found in existent variables.

There are besides alternate positions about the function stock markets play in economic growing. Apart from the position that stock markets may be holding no existent consequence on growing, there are theoretical concepts that show that stock market development may really ache economic growing. For case, Stiglitz ( 1985, 1994 ) , Shleifer and Vishny ( 1986 ) , Bencivenga and Smith ( 1991 ) and Bhide ( 1993 ) note that stock markets can really harm economic growing. They argue that due to their liquidness, stock markets may ache growing since nest eggs rates may cut down due to outwardnesss in capital accretion. Diffuse ownership may besides negatively affect corporate administration and constantly the public presentation of listed houses, therefore hindering the growing of stock markets.

Despite of alternate positions empirical plants continue to demo mostly some grade of positive relationship between stock markets and growing. These surveies mostly based on developed states merely. Merely few surveies have been conducted in context of Nigeria stock market, and those conducted surveies do non demo clear decision sing its impact on economic system. Yadhav ( 2002 ) finds that houses with higher investing have higher economy and higher capital formation. Though his survey may be important in other instances it is of less significance here. Similarly Wagle ( 2002 ) besides carried out the survey on tendencies of salvaging, investing, and capital formation in Nepal, but his survey fails to supply any specific nexus between salvaging, investing and capital formation with stock market development. Similarly Sindhurakar ( 2004 ) has carried out the survey on relationship between the stock market and economic growing without analysing the econometric theoretical accounts.

The survey specifically deals with the undermentioned issues:

1. What is the relationship between the Gross Domestic Product ( GDP ) and authorities investing, authorities disbursals, foreign assistance, nest eggs, and foreign direct investing

2. Be at that place any relationship between the market capitalisation and Gross Domestic Product ( GDP ) ?

3. What is the impact of concentration ratio on economic growing of a state?

4. What is the significance of liquidness on economic growing? What is its impact in capital market?

5. Be at that place any co-integration between the stock development index and economic growing?

6. Be at that place any Granger causality between the stock development and economic growing?

7. Is the Levine and Zerovos theoretical account valid in developing state like Nigeria?

8. Can the little group of investors manipulate a Nigeria capital market easy?

9. How can the authorities able to develop the stock market in coming yearss?

One group of survey argues that stock market does non assist in economic development of a state while the other group argues that it helps in economic development. However, empirical probes of the nexus between fiscal development in general and stock markets and growing in peculiar have been comparatively limited. Assorted empirical researches have suggested a possible connexion between stock market development and economic growing, but are far from unequivocal.

1.3. Objective of the Study

A The chief aim of this survey is to analyze the impact of stock market development in the economic development and growing of the state in context to Nigeria. The specific aims of the survey are as follows.

1. To carry on the empirical analysis of stock market by look intoing the nexus between stock markets and economic growing.

2. To farther analyse the nexus based on set of different variables of economic indexs and stock market indexs.

3. To analyze the importance of liquidness for the economic growing.

4. To analyse the impact of house concentration ratio on economic growing.

5. To analyze the cogency of theoretical account of Levine and Zervo ‘s survey on stock market in developing state like Nigeria.

6. To find and analyse the co-integration and causality between the stock market development index and economic growing.

The aim of this research is to analyze the impact of stock market development in the economic development and growing of the state in context to Nigeria. The research is organized on the undermentioned lines. The 2nd chapter will be concerns with reappraisal of of import empirical plants, refering stock market development and economic growing get downing from 1873 to 2008, while the 3rd chapter analysis of relationship between the stock market development and economic growing descriptive, co-relational and clip series research design will be employed, the 4th chapter outlines the patterning methodological analysis employed for the survey and studies the consequences, 4th and concluding subdivision presents some decision with policy deductions.