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GLOBALIZATION AND
STOCK MARKET GROWTH IN NIGERIA: EMPIRICAL ANALYSIS
ABSTRACT
The research is
intended to find out the relationship between Globalization and Stock Market
Growth in Nigeria. Various literature and theoretical issues were discussed. In
addition an empirical regression and descriptive analysis was carried out to
investigate how globalization variables impact on stock market growth in
Nigeria. The findings from both analyses revealed that trade liberalization,
foreign investment, exchange rate disparity had a significant impact on the
growth of Nigerian Stock Market. While External Debt was the only variable that
had an insignificant impact on the growth of Nigerian Stock market.
However, it is
suggested that for Nigerian stock market to witness larger growth in its market
capitalization and efficiency in its operation, there is need to adopt policies
such as global stock market standard to stimulate inflow of foreign investment,
and to promote stable exchange rate in Nigeria.
TABLE OF CONTENTS
Title Page
Table of
Contents
Abstract
CHAPTER ONE: INTRODUCTION
1.1 Background of the
Study
1.2 Statement of Research
Problems
1.3 Statement of Objectives
1.4 Statement of
Hypotheses
1.5 Significance of the
Study
1.6 Scope of the
Study
1.7 Limitations of the
Study
References
CHAPTER TWO: LITERATURE REVIEW
2.0
Introduction
2.1 Globalization and Stock
Market Growth Linkages
2.1
Preconditions of Stock Market Growth
under
Globalization
2.3
Cost and Benefit of Stock Market Globalization
References
CHAPTER THREE
2.0
Introduction
2.1
Research
Design
2.2
Population and
Sample
2.3
Method of Data
Collection
2.4
Theoretical
Framework
2.5
Model
Specification
2.6
Method of Data Presentation and Analysis
References
CHAPTER FOUR: DATA
PRESENTATION AND ANALYSIS
3.0
Descriptive Analysis
4.1 Questionnaire Administered
and Retrieved
4.2 Analysis of
Results
References
CHAPTER
FIVE: SUMMARY OF FINDINGS, POLICY IMPLICATION AND CONCLUSION
4.0
Introduction
4.1
Summary of Findings
4.2
Policy Implication
4.3
Recommendation
4.4
Conclusion
Bibliography
Appendix
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND
OF THE STUDY
Since the late 1980s,
the pace of globalization has rapidly quickened with the world trade, rising
nearly as fast as world Gross Domestic Product (GDP). This development has been
characterized by the stock market growth and globalization and accelerated by
private capital flows (Adam, 2003). The recent growth of stock market, through
increase in cross border capital movements has been attributed to the removal
of statutory restrictions on the capital account transactions and economic
liberation. IMF (1998) attributes another growth of stock market globally to
macro-economic stabilization and policy reforms in the developing countries;
privatization, liberalization of trade and growth of stock. Similarly, the globalization
of stock markets can also be attributed to the spread of best practices in
corporate governance, accounting rules, and legal traditions. (Feldestein,
2000).
According to Temitope, Oshikoya and Ogbu (2000), the stock market is viewed as
a medium to encourage savings, help channel savings into productive
investments, and improve the efficiency and productivity of investments. The
emphasis on the growth of stock markets for domestic resource mobilization has
also been strengthened by the need to attract foreign capital in non-debt
creating forms.
A
broad consensus has emerged in recent times, which emphasized the critical role
of stock market in the process of development. It is a fat that globalization
leads to transmission of liquid it through savings, investments and
productivity to the growth of stock market (Akinola, 2003). Several research
works has demonstrated, the need for stock market to efficiently transfer funds
for economic development (Magnus and Wydick, 2002). Specifically, the role of
stock market in economic development cannot be overemphasized; the liquidity of
stock (capital investment) has been noted (Levin 1991, Atje and Javanovic
1993). Many profitable investments require a long-term commitment of capital
but investors might not want to tie up their savings for such long periods.
Until recently, Nigerian stock markets have not performed impressively when
compared to those in other regions of the world. However, Nigerian stock
exchange has experienced significant gains in the entry of the new millennium:
market capitalization and new listing no doubt have increases. These changes
have taken place within the context of globalization or internationalization
policies that reflect the effort of the government to use stock markets as a
means of privatization and engine growth of the economy.
However, the concern about the stock market growth in Nigeria is the impact of
globalization on the market. It is not yet clearly ascertained whether
globalization especially through increased Foreign Direct Investment (FDI)
generates positive impact or otherwise on the stock market growth. Though, not
many have looked at the effect of globalization on stock market growth or
economic development of Nigeria undoubtedly, globalization has impacted on most
factors identified in the literature to be determinants of stock market growth.
The nature of this relationship needs to be ascertained. The study of this kind
therefore is warranted since the researcher intends to attempt or examine the
relationship between globalization and stock market growth in Nigeria.
1.2 STATEMENT
OF RESEARCH PROBLEMS
The crux of this study is to find out the directional relationship between
Globalization and Stock Market Growth in Nigeria and how Nigeria Stock market
can benefit from globalization.
With regard to the above, the statement of research problems for this study
therefore arises form the questions such as:
(a)
How has globalization affected stock market growth in Nigeria?
(b)
How has trade liberalization influenced stock market capitalization?
(c)
What relationship exists between foreign investment and stock market growth?
(d)
Does eliminating disparity in exchange rate influenced stock market growth in
Nigeria?
(e)
How has low external debt regime affected the size and growth of Nigerian stock
market?
The answering of
these questions above is the first step towards understanding the link between
globalization and stock market growth in Nigeria, hence the statement of the
research problem cannot be downplayed.
1.3 STATEMENT
OF OBJECTIVES
The broad objective for this study is to examine the impact of globalization on
the Nigerian stock Market Growth.
Specifically, the objectives of the study will also includes:
(1)
To identify the major globalization variables that affect Nigeria stock market
growth.
(2)
To examine the influence of trade liberalization, foreign investment, exchange
rate disparity and low external debt regime on the growth of Nigeria stock
market.
(3)
To identify the costs and benefits of stock market globalization in Nigeria.
(4)
To provide policy suggestion.
1.4 STATEMENT
OF HYPOTHESES
In
the light of the broad objective of the study, the hypothesis below are
formulated:
(1)
Ho: There is no significant relationship between stock market growth
and globalization.
H1: There is a significant relationship between stock market growth
and globalization.
(2)
Ho: There is no significant directional relationship between the
growth of stock market capitalization and trade liberalization.
H1:
There is a significant directional relationship between the growths of stock
market capitalization.
(3)
Ho: Foreign investment has no impact on the growth of stock market
capitalization in Nigeria.
H1:
Foreign investment has impact on the growth of stock market capitalization in
Nigeria.
(4)
Ho: Elimination of exchange rate disparity has no significant impact
on the growth of stock market capitalization.
H1:
Elimination of exchange rate disparity has no significant impact on the growth
of stock market capitalization.
(5)
Ho: Low regime external debt has no significant impact on the growth
of stock market capitalization.
H1: Low regime external debt has a significant impact on the growth
of stock market capitalization.
The
above hypothesis were designed to facilitate investigate into the problem and
are subjected to empirical testing.
1.5
SIGNIFICANCE OF THE STUDY
After the completion
of this research work, the below parties would find it very useful.
(a)
Policy Makers: The importance of knowing the major globalization
indicators that impact on stock market growth in Nigeria cannot be
overemphasized. This study is very important as it would provide suggestions of
how policy markers can manipulate trade liberalization, foreign private
investment, exchange rate disparity, foreign indebtedness, and inflation and
interest rate to the benefit of Nigeria stock market.
(b)
Investors: This study will also be useful to investors’ especially
institutional investors that consider global forces when investing. It will
assist and provide a clear explanation to investors on how globalization forces
affect their investment in stock market.
(c)
Researchers and Readers: The study will provide information to
researchers who would want to write articles and working papers on the issue of
stock market growth and globalization. Readers who want to broaden their
knowledge on the relationship between stock market growth and globalization
will fine the work useful.
(d)
The government and stock market regulator like Securities And Exchange
Commission (SEC) and the Nigerian Stock Exchange (NSE) would find the research
work handy especially in the areas of policy formulation and simulation.
1.6 SCOPE OF
THE STUDY
In this study, globalization
forces would be captured by the trade liberalization (openness), foreign
private investment, exchange rate, foreign indebtedness, inflation rate and
interest rate while growth in Nigeria Stock market would be explained by
changes in stock market Capitalization.
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