THE ROLE OF STOCK EXCHANGE MARKET IN A DEVELOPING ECONOMY ( A CASE STUDY OF THE NIGERIA STOCK EXCHANGE )
CHAPTER
THREE
3.1 RESEARCH DESIGN
As regarding these project, for clear
explanation, secondary data will be employed, which will be necessary to obtain
information for the topic; the role of Nigeria stock exchange market in Nigeria
economic development.
Secondary data source are printed materials
used in building the literature review which are among other purpose provide a
theoretical (Background of the study).
POPULATION
AND SAMPLING TECHNIQUES
Due to the nature of research topic( the role of Nigeria stock
exchange market in Nigeria development)n which is the contemporary predicament
in most of the companies, the researcher has to take many things into
consideration before targeting who and who constitute the production, consequently
for the fact that the topic of the research is technical, in order to ascertain
valid valuables and automatic information, the researcher had to confine the
population to those in the stock exchange of Nigeria economy which comprise of
the companies.
3.2
METHOD AND SOURCES OF DATA COLLECTION
This study uses the error- correction method
to analyze the quantitative effects of stock market development on economic
growth. This paper adopts the model of Chee Keong Choong et al (2003) with
slight modifications. In their models, the authors experienced economic growth
as a function of stock market development (measured by the size of and
liquidity of level of the stock market. They also include two control variables
namely openness argued that government intervention (through the use of
discount rate) affects the relationship between financial development and
economic development. Moreover, the central bank can adjust the liquidity level
in he equity market and influence the ability of ranking institutions in the
supply of funds. It is believed that openness of the economy helps to attract
foreign investment. This is true increase the activities on the stock market as
firms would attempt to raise investment
funds (capital) from the stock market. The only addition to the original model
is the inclusion of the all – share index. Thus, our econometric model is specified
as:
In (GDP) =αO + α1, in (CAPGDP) +α2 in (TNOVGDP)
+α3 in(ALLSHARE) +α4 in (OPENGDP) +α5 In (DAR)
+ U
3.3 VALIDITY AND RELAIBILITY OF INSTRUMENTS
A prior
expectation requires that α1 ,α2, α3andα5
> 0, while +α5
<0. The variables in the model above are defined has follows:
GDP refers to economic growth and it is measured as the logarithm of the real
GDP. The variables was used by Arestic et al (2001) in their empirical work.
CAPGDP refers to market capitalization. It is obtained by dividing the total
market caplitlaistion by GDP. TNOVODP refers to market turnover by GDP. OPENGDP
refers to openness of the economy. It is measured as total import and exports
divided by GPD. DRR refers to the minimum rediscount rate. Chee laeong choong
et al (2003 ) con sideraed market capitalization, market turnover, oepness and the
d iscoutn rate as I m protant determinants (of economic growth) in
their study. ALLSGHRE refers to all –
share index of the Nigeria stock market. Finally, U refers to error or
distributance term. In addition to the GDP, all the varibles are expressed in
their natural logarithmfrom (LN). this study covers the period 1981-2007. The
period is chosen because the information on all share index (an important
variable considered in our analysis
) is only a variable from 1984.
The E-view of software was to analyses
the data.
3.4 Sampling framework
techniques
Before we estimate the relationship between economic growth and stock market development (including the
control variables ) , there was nee to
perform a causality test. This is to ascertain whether a uni-directional or bi
- directional (feed back ) relationship exists between economic – growth and
stock market development. To achieve
this purpose , the author employed the
ganger – causality statistic. Two lags of the variables were considered in the
causality test. The result of the casualty test is presented below
Table 1. The result of the Granger – causality test.
|
Null hypothesis
|
Estimate
|
Casual interference
|
|
LN ALL SHARE Does Not Granger
CAUSE Ln GDP
|
F= 1.63497
(0.22590)
|
No causality
|
|
LN GDP does not Granger Cause
|
F= 0.12953
(0.87942)
|
No causality
|
|
CAUSE
Ln GDP
|
(0.55767)
|
No
causality
|
|
LN
GDP Does Not Granger cause LN CAPGDP
|
F= 0.34284
(0.71484)
|
No
causality
|
|
LN
TNOVGDP does not Granger cause LN GDP
|
F=1 .30026
(0.29975)
|
No
causality
|
|
LN
GDP does not Granger cause LN GDP
|
F= 3.45414
(0.05663)
|
Causality
|
|
LN
OPEN GDP Does Not Granger
|
F= 1.72863
(0.20908)
|
No
causality
|
|
LN
GDP does not Granger cause LN OPENGDP
|
F= 1.66262
(0.22030)
|
No
causality
|
|
LN
DRR Does Not Granger cause LN GDR
|
F= 0.86172
(0.44114)
|
No
causality
|
|
LN
GDR does not Granger cause LN DRR
|
F= 2.80144
(0.09055)
|
Causality
|
Note:
The decision rule of the causality test state that if the probability value of
the e stomata is higher than the 5 percent or (0.05) level of significance, we
accept the null hypothesis, sad vice versa.
The next
step is to conduct the stationary (unit root) test on the variables. This is
achieved by employing the augmented doctor – fuller (ADF) Statistic. The result of the statutorily test is shown
in table
|
Variables
|
ADF statistics
|
Critical value
|
Order of independence
|
|
LN GDP
|
-4.472136 (0,0001)
|
1% = -2.679735
5% = -1.958088
10% = -1.607830
|
Stationary at first difference
|
|
LN ALL SHARE
|
-4.4796003 (0,0001)
|
1% = -2.692358
5% = -1.960171
10% = -1.607051
|
Stationary
at first difference
|
|
LN
CAPGDP
|
-5
.528914(0,0000)
|
1% = -2.6685718
5% = -1.959071
10%
= -1.607456
|
Stationary
at first difference
|
|
LN
TNOVGDP
|
-8.375785 (0,0000)
|
1% = -2.692358
5% = -1.960171
10%
= -1.607051
|
Stationary
at first difference
|
|
LN
OPENGDP
|
-4.358632
(0,0002)
|
1% = -2.679735
5% = -1.958088
10%
= -1.607830
|
Stationary
at first difference
|
|
LN
DRR
|
-4-553086
(0,0001)
|
1% = -2.685718
5% = -1.959071
10%
= -1.607456
|
Stationary
at first difference
|
The result of the unit root
test indicate that three variables, LN GDP, LN OPENGDP and LN DRR are
stationary at the first difference, while LN ALL SHARE, LN CAPGDP and LN
TNOVGDP are stationary at second difference.
Finally
we estimate the relationship between the economic growth and it potential
determinants.
The result of the estimate is presented in the table below.
Table II. The result of the estimate dependent variable: LN GDP
Method: Leart squares
Date: 11/11/09 Time
12:45
Sample: (adjusted): 1985 -2006
Included observation: 22 after adjusting endpoints
|
Variables
|
Coefficient
|
Std. Error
|
T. Statistic
|
Prob
|
|
C
|
7.384129
|
1.039652
|
7.102498
|
0.0000
|
|
LN ALL SHARE
(-1)
|
0.255780
|
0.154356
|
1.657077
|
0.1183
|
|
LN CAP GDP
|
0.652445
|
0.247560
|
2.635502
|
0.0187
|
|
LN TNOGDP
|
0.260294
|
0.082670
|
-3.148596
|
0.0066
|
|
LN OPENGDP
|
0.403458
|
0.153696
|
-2.65034
|
0.0191
|
|
LNDRR
|
0.784264
|
0.259471
|
3..022552
|
0.0086
|
|
ECM (-1)
|
0.906009
|
0.205864
|
4.401005
|
0.0005
|
|
R-
Squared
|
0.92080
|
Mean
Dependent Variable
S.D
dependent Variable
Schwarz
info criterion
F-
Statistic
Prob
(F-Statistic )
|
11.63636
|
|
|
Adjusted
R- squared
|
0.889131
|
0.492366
|
||
|
S.E
of Regression
|
0.163943
|
-0.525225
|
||
|
Sum
Squared Reside
|
0.403159
|
-0.178075
|
||
|
Log
likelihood
|
12.77748
|
29.06884
|
||
|
Durbin
Watson
|
1.977183
|
0.000000
|
||
The
result of the estimation show the exploratory variables account f or
approximately 92.08 percent variation in economic growth. The F. Statistic
(29.07) indicates that the explanatory variables are jointly significant and
are capable of explaining changes in economic growth. The Durbin Watson
statistic (1.98) Illustrate the absence of auto (serial) correlation. The
econometric results also reveal that the all share index has an insignificant
positive effect on economic growth at 5 percent level of significance. Another
discovery from the estimation is that market capitalization -GDP ratio n has significance.
A 1 percentage increase in the market capitalization-GDP ratio raises economic
growth by approximately 0.65 percentages. However, market turnover –GDP ratio
has significance. A 1 percentage increase in the turnover GDP ratio reduces
economic growth by approximately 0.26 percentages. The regression results also
reveal that openness. GDP ratio has a
significant negative impact on economic growth of 5 percent level of
significant. A1 percentage increase I openness GDP ratio leads to 0.40 percentage
reduction in economic growth. Moreover, the estimation shows that discount rate
has a significant positive effect on economic growth at 5 percent level of
significance. A 1 percentage increase in the discount rate leads to
approximately 0.78 percentage increase in economic growth. Our findings that the
stock market development (measured by market capitalization GDP ratio) raise
economic growth is consistent with Abdullahi 2005. Adam and sanni (2005),
Obarmiro (2005) in nigeria. It also in l ine
with Levine and Zervos (1998), Hamid molitzti and Sumit Agarwal (1098),
minier (2003), chee keong choong et all
(2003), nierwerburgh et al (2006), liu HSU (2006), surge Babadur and suman
newpane (2006) and muhammed shabaz et al (2008), who reported that stock market
development facilitate economic growth.
The
partial adjustment parameter has been shown to zhave a positive sign and
significant thus indicating the divergence between the actual and desired level
of growth within a particular period. Lastly, it is shown that variables are
co-integrated and a long run equilibrium or relationship exists between the
variables.
3.5 METHOD OF DATA ANALYSIS USED
These
deals with the analysis of data collection through interview there hundred
percentage regarded in the respect of the response to question 5, question were
drawn out during the introduction period. The questioned were made up of oral
and verbal question tally method will be used to analysis being created to hear
the opinion of the respondent in relation to stock exchange market of Nigeria
economic development.
CHAPTER
FOUR
Data presentation, analysis findings
4.1presentation of data
|
Response
|
Respondent
|
Percentage of Respondent (%)
|
|
Arrangement
|
50
|
100
|
|
Economic Importance
|
35
|
70
|
|
Operation
|
35
|
70
|
|
Problems
|
45
|
90
|
|
Prospect
|
45
|
90
|
The percentage
of the study of the data presentation of 50 respondent’s interview during this
research. These 50 people constitute 100% of the population and their responses
in respect of importance of the stock exchange to the development of Nigeria
economy.
4.2 ANALYSIS DATA / TEST OF HYPOTHESIS
|
Variables
|
No of
Respondent
|
Percentage (%)
|
|
Arrange
|
-
|
-
|
|
Effective
|
50
|
50
|
|
Low
|
-
|
-
|
|
Total
|
50
|
100
|
As we
can see in the table that the arrangement of people in the buying and selling of share is very effective and it has contributed immensely to
the development of the economy.
TEST OF HYPOTHESIS
From
the study as far it is evidence that the
role of the Nigeria stock exchange market has developed the Nigeria
economy. This from the statement of hypothesis partier made I n the first
chapter we would reject Ho and acc pet
hi and conclude in the following terms.
Hypothesis
one (1)
Ho. There
exist is no significant relationship between stock market size and economic
growth.
H1:
there is a significant relationship between stock market and economic growth.
Hypothesis
two (2)
Ho.
There is no significant relationship between stock market liquidity and
economic growth
H1:
There is a significant relationship between stock market liquidity and economic
growth
Hypothesis
three (3).
Ho.
There is no relationship between stock market liquidity and economic growth and
development in developing countries
H1:
There is a relationship between stock market and economic growth and
development in developing countries.
Hypothesis
four (4)
Ho: There is no relationship between economic growth
and it potential determinants
H1: There
is relationship between economic growth and it potential determinants
Hypothesis
Five (5)
Ho: There exist a significant relationship
between the Nigeria stock exchange
market agent play not only significant role in the Nigeria economy
H1: The
Nigeria stock exchange market agent play
not only significant role in the Nigeria economy but also play maintenance and
supervising role to the to stock exchange market in Nigeria.
4.3
INTERPRETATION OF RESULT
|
Variables
|
No of Respondent
|
Percentage (%)
|
|
Exchange of good quality
|
-
|
-
|
|
Buying
and selling of share only
|
35
|
35
|
The
majority of people are not aware of the operation in the Nigeria stock exchange, they may be
away of its existence, but do not know the series of operation they call
out.
4.4 research findings
Given
the empirical results reported above, many policy implications can be drawn.
Firstly since stock market development captured by market capitalization - GDP ratio has statistical positive
influence on economic growth, it implies that
higher stock market capitalization increase the ability of firms to real
capital. Thus they (firms) will be able to increase investment spending and expand
production. Of goods and service which translate to higher growth rate
overtime. Secondly, the negative effect of openness on economic growth may be
attributed to the fact that Nigeria is yet to put appropriate and effective policies
in place in order to reap the benefits of international trade as well attract foreign
investment. It is believed that overtime facilities not only the I n flow of foreign investment but also enhance the
production capacity of firms that do
business in the country as well as increase their access to
capital on the stock market. This is turn I n erased output of goods and
service and raise economic growth. Moreover given that rising discount rate is
shown to have positive impact on economic growth, raising the productivity and
efficiency of firms would increase their rate of return. If the rate of returns of firms is higher than
the rate of which they borrow (discount rate) from the banks, it would
induce them to increase production and
accelerate economic growth. Furthermore, the negative impact of market turnover
GDP ratio (a measure of market liquidity) on economic growth may be due to the difficulties
involved in trading shares such as high transaction cost, delay in the
insurance of share certificate to mention just few. These sometime contribute to
production and liquidity s tocks, as well as contraction of output and increase joint economic downturn.
In
order to develop the Nigeria stock market, we recommend that government should remove
impediments to state market development in the term of tax, legal and
regulatory barriers because they are sometime me disincentives to investment. Sec
o n d l y , the Nigerian security and
exchange commission(SEC) soul d improve the
trading system purchase to increase
the ease with which investors can
purchase and sell shares, thus quarantine liquidity on the stock market. Thirdly
government should invest and develop the
nation’s infrastructure (such as roads, power, telecommunication e.t.c) in order to create an enabling
environment for business to grow, increase
the productivity and efficiency
and the rate of returns of firms. Fourthly, government should employ appropriate trade policies that promote the inflow of international capital of the nation.
Moreover, government should strength the capacity of the Nigerian security and exchange commission so
as to check and percent sharp practices by market operators (participatory
speculators) in order to safeguard has shown that the confidence of many
shareholders is warning due to the declining fortune of the stock market and
many are reluctant to invest in share and other securities, besides, it is been
aurged by some analysis that most
activities on the stock market are manipulated by some operators (speculators).
This tend to determine the growth potentioal of the s tock market with it negative consequences on the economy. To this end, government
should take a bold step in arresting the meltdown and restoring the confidence of operators and
shareholder, and the possibility of a bail –out of the stock market should not
be ruled out.
CHAPTER
FIVE (5)
SUMMARY,
CONCLUSION AND RECOMMENDATION
1.1
SUMMARY
This topic of this research
work is the I mprotanbce of stock
echange market in an economic and the
stock researcher has taken hold step to set row the stock exchange market
positive impact on the growth of the economy.
The stock economy exchange has
also make available attractive and secured means through which investor
can raise fund to finance their project.
The stock exchange through the capital market serve as a vehicle
for some policy implementation for government, the investors and listed
companies have against from the operation of the stock exchange.
1.2
CONCLUSION
The role far played by the
Nigeria stock market in the Nigerian
economy cannot be over emphasized. The exchange has always played a significant
role in the growth of our nation.
In the time of boom, it assisted in the provision of f inance for expainsion,
reconstrucrting and establishment of productive facilities and in the
current economic stagnation and recession, it has been diversification
and acquisitions.
1.3
RECOMMENDATION
For the purpose of the Nigerian stock exchange to be more
effective and efficient the following
are recommended.
1.
The use of latest information technology should be introduced in Nigeria
stock exchange.
2.
The Nigeria stock should be upgrade to an
international exchange in the world.
3.
The use electronic trading should be
introduced whereby show of the Nigerian stock exchange can be bought any part of the world via the
internet.
4.
The market capitalization of the Nigeria stock
exchange should be stimulators and increased.
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