Stock market returns, globalization and economic growth in Nigeria: Evidence from volatility and cointegrating analyses

• Published date: 01 May 2022
• Author: Dalis T. Dabwor,Paul Terhemba Iorember,Sarauta Yusuf Danjuma
• Date: 01 May 2022
• DOI: http://doi.org/10.1002/pa.2393

ACADEMIC PAPER

Stock market returns, globalization and economic growth in

Nigeria: Evidence from volatility and cointegrating analyses

Dalis T. Dabwor

1

| Paul Terhemba Iorember

1,2

| Sarauta Yusuf Danjuma

3

1

Department of Economics, University of Jos,

Jos, Nigeria

2

Faculty of Social Sciences, Nile University of

Nigeria, Abuja, Nigeria

3

Department of Monetary Policy, Central Bank

of Nigeria, Abuja, Nigeria

Correspondence

Paul Terhemba Iorember, Department of

Economics, University of Jos, Jos, Nigeria.

Email: piorember1990@gmail.com

The study investigates the effect of stock market volatility on economic growth in

Nigeria, accounting for the moderating role globalization (economic, social and politi-

cal globalization) from 1981 to 2018. Applying the recently developed unit root with

structural breaks by Lee and Strazicich test, the Bayer–Hancks and Johansen

cointegration tests, the results show that all the variables (real gross domestic prod-

uct, stock market returns and globalization index) are integrated of order one, and are

also cointegrated, suggesting evidence of long-run relationship. Further, the results

of the GARCH(1,1) model indicate that the effect of shocks to SMR volatility are very

likely to be permanent than temporary. Regarding the nexus between stock market

return and economic growth, the study reveals a positive, inelastic but statistically

insignificant effect of stock market returns on economic growth in Nigeria. Also,

globalization has a positive, elastic and statistically significant effect on economic

growth in Nigeria. The study therefore, recommends collaborations on policy mea-

sures that would stabilize and reposition the stock market to continue playing its crit-

ical role of galvanizing funds for investment and stimulating economic growth and as

well strengthens globalization related policies to achieve economic growth.

1|INTRODUCTION

The growth and development of most economies (both developed

and developing) depend on the strength of its financial institutions.

Financial institutions play the role of mobilizing resources from sur-

plus to deficit sectors of the economy. It is arguably true that the capi-

tal markets of developed and under developed economies are crucial

in enhancing economic growth since they provide funds for invest-

ment purposes and perform the function of facilitating the exchange

of already existing securities as prices and economic conditions of the

economies dictate. Capital markets of most economies are segregated

into primary market for new issues and secondary market for the

transaction of already existing shares, mostly through the stock mar-

ket. Stock markets development have assumed a developmental role

in global economies following the observable impact that the market

has exerted in corporate finance and economic activity (see Al-FakI,-

2006; Azam, Muhammad, Aznita, & Jimoh, 2016; Babatunde, 2013;

Curto & Marques, 2013; Dabwor, 2015; Dada, 2014).

However, the role of the stock market in improving economic

growth has faced criticism overtime. Riman, Esso, and Eyo (2008)

argue that stock markets has the tendency to reveal information

through frequent instability and changes in equity prices, thereby

increasing the cost of transaction via frequent research on the fluctua-

tions in the market. The quest for enhancing productivity in the stock

markets is reinforced by the trends in globalization. Generally, globali-

zation has changed capital movements, structures and processes;

however, Dabwor (2010) observes that globalization has created

unequal economic opportunities for both the developed and the

developing economies. While the developed economies enjoy

unrestricted investment opportunities in the financial, and oil and gas

sectors including jobs in developing economies, the developing

economies do not have equal investment and employment opportuni-

ties in the developed economies. Similarly, Iorember, Usman, and

Jelilov (2019), Usman, Olanipekun, Iorember, and Goodman (2020)

and Usman, Alola, and Sarkodie (2020) observe that globalization is

more beneficial to the industrialized economies than to the

Received: 15 July 2020 Revised: 10 August 2020 Accepted: 14 August 2020

DOI: 10.1002/pa.2393

J Public Affairs. 2022;22:e2393. wileyonlinelibrary.com/journal/pa © 2020 John Wiley & Sons Ltd 1of9

https://doi.org/10.1002/pa.2393