GLOBALIZATION AND STOCK MARKET GROWTH IN NIGERIA: EMPIRICAL ANALYSIS
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
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
CHAPTER TWO: LITERATURE REVIEW
2.1 Globalization and Stock Market Growth Linkages
2.1 Preconditions of Stock Market Growth
2.3 Cost and Benefit of Stock Market Globalization
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
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS
3.0 Descriptive Analysis
4.1 Questionnaire Administered and Retrieved
4.2 Analysis of Results
CHAPTER FIVE: SUMMARY OF FINDINGS, POLICY IMPLICATION AND CONCLUSION
4.1 Summary of Findings
4.2 Policy Implication
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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