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The Causal Effect of Stock Market Development, Financial Sector Reforms and Economic Growth: The Application of Vector Autoregressive and Error Correction Model

Author

Listed:
  • Charles O. Manasseh

    (Department of Economics, Coal City University Enugu, Nigeria)

  • Jonathan E. Ogbuabor

    (Department of Economics, University of Nigeria Nsukka, Nigeria.)

  • Charles N. Anumudu

    (Department of Economics, Michael Okpara University, Umudike Umuahia, Nigeria)

  • Felicia C. Abada

    (Social Science Unit, School of General Studies, University of Nigeria Nsukka, Nigeria)

  • Martins A. Okolie

    (Department of Business Administration, Coal City University Enugu, Nigeria.)

  • Okoro E. Okoro

    (Department of Banking & Finance, University of Nigeria, Enugu Campus, Nigeria.)

Abstract

The study examined the causal relationship between stock market development, financial sector reform and economic growth in Nigeria, using Vector autoregressive and error correction model for the analysis. We observed bidirectional causality between stock market development and economic growth, along with financial sector reform and economic growth. This implies that stock market development and economic growth and; financial sector development and economic growth promote each other. More so, the findings reveal a unidirectional causality running from financial sector reform to stock market development. Hence, there is an evidence of positive long-run relationship between the variables of cointegrating equations. Furthermore, more inquiries on the relationship between business environment, legal framework and stock market development, show a positive long run relationship between the variables of the cointegrating vectors, suggesting that good business environment and quality legal framework could be a prerequisite for stock market development through confidence building and investors protection.

Suggested Citation

  • Charles O. Manasseh & Jonathan E. Ogbuabor & Charles N. Anumudu & Felicia C. Abada & Martins A. Okolie & Okoro E. Okoro, 2018. "The Causal Effect of Stock Market Development, Financial Sector Reforms and Economic Growth: The Application of Vector Autoregressive and Error Correction Model," International Journal of Economics and Financial Issues, Econjournals, vol. 8(2), pages 357-369.
    • Handle: RePEc:eco:journ1:2018-02-44
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    References listed on IDEAS

    as
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    5. Anthony Enisan Akinlo & Tajudeen Egbetunde, 2010. "Financial Development and Economic Growth: The Experience of 10 Sub-Saharan African Countries Revisited," The Review of Finance and Banking, Academia de Studii Economice din Bucuresti, Romania / Facultatea de Finante, Asigurari, Banci si Burse de Valori / Catedra de Finante, vol. 2(1), pages 017-028, June.
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    7. Muhammad Azam & Muhammad Haseeb & Aznita Binti Samsi & Jimoh Olajide Raji, 2016. "Stock Market Development and Economic Growth: Evidences from Asia-4 Countries," International Journal of Economics and Financial Issues, Econjournals, vol. 6(3), pages 1200-1208.
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    Cited by:

    1. Charles O. Manasseh & Nnah M. Iroha & Kingsley I. Okere & Ifeoma C. Nwakoby & Ogochukwu C. Okanya & Nnenna Nwonye & Onuselogu Odidi & Oliver I. Inyiama, 2022. "Application of Markov chain to share price movement in Nigeria (1985–2019)," Future Business Journal, Springer, vol. 8(1), pages 1-14, December.

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    More about this item

    Keywords

    Economic Growth; Stock Market Development; Financial Sector Reform;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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