ECONOMIC GROWTH AND STOCK MARKET IN NIGERIA: VECTOR ERROR CORRECTION MODEL APPROACH

The contribution of stock market to economic growth is crucial for countries where incomes and hence domestic savings are particularly low, like Nigeria. They needed external capital for investment and to promote their economic growth and development. A country with relatively strong and robust stock market attracts more and rapid economic growth and development than one with weak and fragile stock market. This research study examines the economic analysis of impact of stock market on the economic growth in Nigerian economy between 1981 and 2020. The study used vector error correction model(VECM) to determine the relationship between economic growth and some key indicators of stock market. ADF Unit root and Johansen Cointegration tests were conducted on the time series data used for this study to ascertain if they are stationary and cointegrated to avoid spurious regression and correlation associated with non-stationary time series variables. The tests reveal that all the variables; (GDP,MCAP, TLEGS, TNI , and TVTS) were non-stationary but integrated of order one i.e. I(1). Results show that indicators of stock market( MCAP, TVTS,TLEGS,TNI) had positive impact on economic growth. Except coefficient of TVTS that was statistically insignificant at 0.05, findings reveal that the coefficients of all other explanatory variables(MCAP, TLEGS and TNI) were statistically significant at 5 per cent. The coefficient of error correction term was rightly signed and significant. The pairwise granger causality tests show bi-directional causalities between each of (MCAP, TLEGS, TNI) and economic growth and vice-versa but no causality running from TVTS to economic growth and vice-versa. Based on these findings, this study recommends among others that a better and functional intuitions must be in place. This is to oversee institutional and regulatory reforms in the stock market.