West African Emerging Economies: Comparative Insights on Ghana’s and Nigeria’s Stock Market Development

The burgeoning interest on the importance of stock market in
modern economies has reinforced the growing notion that finance is paramount
to economic growth and in particular the rising debate on the fledgling state of
West African stock markets coupled with the implications for the sub-region’s
emerging economies which are worrisome. Hence, the paper examines the long
run and causal relationship between stock market development and West
African emerging economies in a comparative context of Ghana and Nigeria.
Based on Autoregressive Distributed Lag (ARDL) bounds test approach, the
findings support the evidence of long run cointegration between stock market
development and economic growth in Ghana, whereas further evidence reveals
an insignificant positive long run impact on economic growth. In contrast, there
is no long run cointegration between stock market indicators and economic
growth in Nigeria. Furthermore, in the context of Vector Error Correction
Model (VECM) and Vector Autoregressive model (VAR) for Ghana and
Nigeria respectively, Granger causality test indicates that the direction of
causality only runs from economic growth to stock market development
(i.e., unidirectional) in both countries. Nonetheless, the empirical evidence
on growth –led finance is specifically feeble in Nigeria. In view of these
results, the paper posits that stock markets could well play a crucial role in
stimulating growth in West Africa. However, to attain this goal, there is
need to launch reforms which entail the overhaul of legal and regulatory
framework as well as principles underlying effective supervision. Also,
Ghana and Nigeria should ensure that the stock markets are properly
integrated into their respective economies and the strong integration of the
two markets through robust institutional and governance structure. These
could thus foster the development of stock markets in the two countries.