Economics and Business
ISSN 2775-9237 (Online)
Published: 12 June 2020
Stock Market-Growth Relationship in an Emerging Economy: Empirical Finding from ARDL-Based Bounds and Causality Approaches
Tomiwa Sunday Adebayo, Abraham Ayobamiji Awosusi, Fehiman Eminer
Cyprus International University, Near East University, European University of Lefke Mersin
Download Full-Text Pdf
Keywords: Stock Market, Economic Growth, ARDL, Toda Yamamoto, Variance Decomposition
This paper tends to establish the short and long run dynamics between stock market and GDP growth in Nigeria utilizing yearly data spanning between 1989 and 2017. The paper deployed the ARDL, FMOLS, DOLS, Toda Yamamoto causality and the variance decomposition techniques to verify these dynamics. The ARDL Bounds test reveals evidence of cointegration in the long run among the variables. The ARDL estimate reveals market capitalization of listed companies affects economic growth positively in the short and long run. Also, stocks market turnover ratio positively impacts economic growth while stock market total value positively affects GDP in the short run. The result of the Toda Yamamoto causality revealed one-way causality from Stocks market turnover ratio to economic growth and from Stock market total value traded to economic growth. The variance decomposition revealed the strength of causality among the variables for a relatively longer period. Based on these findings, recommendations were put forward.
Adamu, J. A., & Sanni, I. (2005). Stock market development and Nigerian economic growth. Journal of economic and allied fields, 2(2), 116-132
Agarwal, S., & Mohtadi, H. (2004). Financial markets and the financing choice of firms: Evidence from developing countries. Global Finance Journal, 15(1), 57-70.
Aigbovo, O., & Izekor, A. O. (2015). Stock Market Development and Economic Growth in Nigeria: An Empirical Assessment. International Journal of Business and Social Science, 6(9), 27-36.
Atje, R., & Jovanovic, B. (1993). Stock markets and development. European Economic Review, 37(2-3), 632-640.
Ariyo, A., & Adelegan, O. (2005). Assessing the impact of capital market reforms in Nigeria: An Incremental Approach. In 46th Annual Conference of the Nigeria Economic Society in Lagos, August.
Arestis, P., Demetriades, P. O., & Luintel, K. B. (2001). Financial development and economic growth: the role of stock markets. Journal of Money, credit, and banking, 16-41.
Azubike, A. (2017). Impact of the Nigerian stock exchange on economic growth.
Arestis, P., & Demetriades, P. (1997). Financial Development and Economic Growth: Assessing the Evidence. The Economic Journal.
Brasoveanu, L. O., Dragota, V., Catarama, D., & Semenescu, A. (2008). Correlations between capital market development and economic growth: The case of Romania. Journal of Applied Quantitative Methods, 3(1), 64–75.
Chandra Padhan, P. (2007). The nexus between stock market and economic activity: an empirical analysis for India. International Journal of Social Economics, 34(10), 741-753.
Crotty, J. (2009). Structural causes of the global financial crisis: a critical assessment of the ‘new financial architecture’. Cambridge journal of economics, 33(4), 563-580.
Deb, S. G., & Mukherjee, J. (2008). Does stock market development cause economic growth? A time-series analysis for Indian economy. International Research Journal of Finance and Economics, 21(3), 142-149.
Demirgüç-Kunt, A., & Levine, R. (1996). Stock market development and financial intermediaries: Stylised facts. World Bank Economic Review, 10(2), 291–321.
Ewah, S. O., Esang, A. E., & Bassey, J. U. (2009). Appraisal of capital market efficiency on economic growth in Nigeria. International Journal of Business & Management, 4(12), 219–228.
Enisan, A.A. &Olufisayo, A.O. (2009). Stock market development and economic growth: Evidence from seven sub-Sahara African countries, Journal of Economics and Business. 61 (2), 162 – 171.
Friedman, M., & Schwartz, A. J. (1963). A Monetary History of the US 1867-1960. Princeton University Press.
Guo, F., Hu, J., & Jiang, M. (2013). Monetary shocks and asymmetric effects in an emerging stock market: The case of China. Economic Modelling, 32, 532-538.
Gujarati, D., & Porter, D. C. (2004). Basic Econometrics, 2004. Editura McGraw-Hill, 858.
Harris, R., & Sollis, R. (2003). Applied time series modeling and forecasting
Hailemariam, A., & Guotai, C. (2014). Stock market development and economic growth: Empirical evidence for emerging market economies. International Journal of Economics, Finance and Management Sciences, 2(2), 171-181.
Hofileña, D., & Tomaliwan, F. (2014). Measuring asymmetric volatility and stock returns in the Philippine Stock Market. Google Scholar.
Iheanyi, I. H., & Sotonye, I. (2017). Assessing the Performance of Nigeria’s Bank through Camel Model. Journal of Accounting and Financial Management ISSN 2504-8856 Vol. 3 No. 1 2017.
Johansen, S. (1988). Statistical analysis of cointegration vectors. Journal of economic dynamics and control, 12(2-3), 231-254.
Johansen S, Juselious K. (1990). Maximum Likelihood Estimation and Inference on Co-integration with Applications to the Demand for the Money. Oxford Bulletin of Economics and Statistics, 52: 169 - 210.
Levine, R. (1991). Stock markets, growth, & tax policy. Journal of Finance, 46(4), 1445–65.
Oskooe, S.A.P (2010), “Emerging Stock Market Performance and Economic Growth” American Journal of Applied Sciences 7 (2): pp 265-269
Maria, Stock Market Respond to Domestic Economic Fundamentals and Regional Equities Markets: Evidence from Philippine, DLSU Research Congress, 4, 2016, 2449-3309.
Narayan, P. K. (2005). The saving and investment nexus for China: evidence from cointegration tests. Applied Economics, 37(17), 1979-1990.
Naceur, S. B., & Ghazouani, S. (2007). Stock markets, banks, and economic growth: Empirical evidence from the MENA region. Research in International Business and Finance, 21(2), 297-315.
Newbold, P., & Granger, C. W. (1974). Experience with forecasting univariate time series and the combination of forecasts. Journal of the Royal Statistical Society: Series A (General), 137(2), 131-146.
Njiforti, P. (2015). Impact of the 2007/2008 Global Financial Crisis on the Stock Market in Nigeria. CBN Journal of Applied Statistics Vol. 6 No. 1(a).
Nurudeen, A. (2009). Does Stock Market Development Raise Economic Growth? The Review of Finance and Banking, 1(1), 015-026.
Nyong, M. O. (1997). Capital Market Development and Long-run Economic Growth: Theory, Evidence, and Analysis. First Bank Review, 13-38. December.
Nguyen, T., Locke, S., & Reddy, K. (2014). A dynamic estimation of governance structures and financial performance for Singaporean companies. Economic Modelling, 40, 1-11.
Obadan, M. I. (1998). Capital Market and Nigeria’s Economic Development. Presidential address presented at the 1-day seminar of the Nigerian Economic Society at the Institute of International Affairs on 21st January 1987.
Ouattara, B. (2004). Foreign Aid and Fiscal Policy in Senegal. Mimeo University of Manchester.
Oyejide, T. A. (1994). The Financial System and Economic Growth in the Context of Political Transition. Central Bank of Nigeria Economic and Financial Review, 32(3), 260-267.
Oskooe, S. A. (2010). Emerging stock market performance and economic growth. American Journal of Applied Sciences, 7(2), 265.
Pesaran, B., & M. H. Pesaran (2010). Time Series Econometrics using Microfit 5.0: A User’s Manual. Oxford University Press.
Pesaran, M. H., & Shin, Y. (1995). Long-run Structural Modelling. Cambridge, Department of Applied Economics, University of Cambridge (No. 9419). DAE Working Paper.
Pesaran, M. H., Shin, Y., & Smith, R. P. (1999). Pooled mean group estimation of dynamic heterogeneous panels. Journal of the American Statistical Association, 94(446), 621-634.
Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of applied econometrics, 16(3), 289-326.
Seetanah, B., Subadar, U., Sannassee, R. V., Lamport, M., & Ajageer, V. (2012). Stock market development and economic growth: Evidence from least developed countries (No. 1205). Hochschule fuer Technik und Wirtschaft, Berlin.
Seetanah, B., Sawkut, R., Sannasee, V., & Seetanah, B. (2010). Stock market development and economic growth in developing countries: Evidence from Panel VAR framework. In CSAE Conference (pp. 1-25).
Toda HY, Yamamoto T (1995) Statistical inference in vector auto-regressions with possibly integrated processes. J Econ, 66(1–2):225–250