top of page
Asian Institute of Research, Journal Publication, Journal Academics, Education Journal, Asian Institute
Asian Institute of Research, Journal Publication, Journal Academics, Education Journal, Asian Institute

Economics and Business

Quarterly Reviews

ISSN 2775-9237 (Online)

asian institute research, jeb, journal of economics and business, economics journal, accunting journal, business journal, managemet journal
asian institute research, jeb, journal of economics and business, economics journal, accunting journal, business journal, managemet journal
asian institute research, jeb, journal of economics and business, economics journal, accunting journal, business journal, managemet journal
asian institute research, jeb, journal of economics and business, economics journal, accunting journal, business journal, managemet journal
crossref
doi
open access

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

asian institute research, jeb, journal of economics and business, economics journal, accunting journal, business journal, management journal

Download Full-Text Pdf

doi

10.31014/aior.1992.03.02.247

Pages: 903-916

Keywords: Stock Market, Economic Growth, ARDL, Toda Yamamoto, Variance Decomposition

Abstract

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.

References

  1. Adamu, J. A., & Sanni, I. (2005). Stock market development and Nigerian economic growth. Journal of economic and allied fields, 2(2), 116-132

  2. Agarwal, S., & Mohtadi, H. (2004). Financial markets and the financing choice of firms: Evidence from developing countries. Global Finance Journal, 15(1), 57-70.

  3. 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.

  4. Atje, R., & Jovanovic, B. (1993). Stock markets and development. European Economic Review, 37(2-3), 632-640.

  5. 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.

  6. 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.

  7. Azubike, A. (2017). Impact of the Nigerian stock exchange on economic growth.

  8. Arestis, P., & Demetriades, P. (1997). Financial Development and Economic Growth: Assessing the Evidence. The Economic Journal.

  9. 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.

  10. 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.

  11. 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.

  12. 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.

  13. Demirgüç-Kunt, A., & Levine, R. (1996). Stock market development and financial intermediaries: Stylised facts. World Bank Economic Review, 10(2), 291–321.

  14. 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.

  15. 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.

  16. Fynn, Kwame D. (2012) "Does the Equity Market affect Economic Growth?" The Macalester Review 2(2): Article 1. Available at: http://digitalcommons.macalester.edu/macreview/vol2/iss2/1

  17. Friedman, M., & Schwartz, A. J. (1963). A Monetary History of the US 1867-1960. Princeton University Press.

  18. 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.

  19. Gujarati, D., & Porter, D. C. (2004). Basic Econometrics, 2004. Editura McGraw-Hill, 858.

  20. Harris, R., & Sollis, R. (2003). Applied time series modeling and forecasting

  21. 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.

  22. Hofileña, D., & Tomaliwan, F. (2014). Measuring asymmetric volatility and stock returns in the Philippine Stock Market. Google Scholar.

  23. 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.

  24. Johansen, S. (1988). Statistical analysis of cointegration vectors. Journal of economic dynamics and control, 12(2-3), 231-254.

  25. 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.

  26. Levine, R. (1991). Stock markets, growth, & tax policy. Journal of Finance, 46(4), 1445–65. http://dx.doi.org/10.1111/j.1540-6261.1991.tb04625.x

  27. Oskooe, S.A.P (2010), “Emerging Stock Market Performance and Economic Growth” American Journal of Applied Sciences 7 (2): pp 265-269

  28. Maria, Stock Market Respond to Domestic Economic Fundamentals and Regional Equities Markets: Evidence from Philippine, DLSU Research Congress, 4, 2016, 2449-3309.

  29. Mishra PK, Mishra US, Mishra BR, Mishra P (2010) Capital market efficiency and economic growth: The case of India. European J Econ Fin Admin Sci 27: 130-138.

  30. Narayan, P. K. (2005). The saving and investment nexus for China: evidence from cointegration tests. Applied Economics, 37(17), 1979-1990.

  31. 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.

  32. 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.

  33. 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).

  34. Nurudeen, A. (2009). Does Stock Market Development Raise Economic  Growth? The Review of Finance and Banking, 1(1), 015-026.

  35. Nyong, M. O. (1997). Capital Market  Development and Long-run Economic Growth: Theory, Evidence, and Analysis. First  Bank Review, 13-38. December.

  36. Nguyen, T., Locke, S., & Reddy, K.  (2014). A dynamic estimation of governance structures and financial  performance for Singaporean companies. Economic Modelling, 40,  1-11.

  37. 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.

  38. Ouattara, B. (2004). Foreign Aid and  Fiscal Policy in Senegal. Mimeo University of Manchester.

  39. 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.

  40. Oskooe, S. A. (2010). Emerging  stock market performance and economic growth. American Journal of  Applied Sciences, 7(2), 265.

  41. Pesaran, B., & M. H. Pesaran (2010). Time  Series Econometrics using Microfit 5.0: A User’s Manual. Oxford University  Press.

  42. Pesaran, M. H., & Shin, Y. (1995). Long-run  Structural Modelling. Cambridge, Department of Applied Economics, University  of Cambridge (No. 9419). DAE Working Paper.

  43. 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.

  44. 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.

  45. Seyyed, A. (2010). Emerging Stock Market  Performance and Economic Growth. American Journal of Applied Sciences, 7(2),  265-269. http://dx.doi.org/10.3844/ajassp.2010.265.269

  46. 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.

  47. 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).

  48. Toda  HY, Yamamoto T (1995) Statistical inference in vector auto-regressions with  possibly integrated processes. J Econ, 66(1–2):225–250

bottom of page