STOCK MARKET AND ECONOMIC GROWTH IN WEST AFRICA: A COMPARATIVE STUDY OF COTE D’IVOIRE, GHANA AND NIGERIA
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Background to the Study
All nations of the world strive to achieve sustainable economic growth on a long term basis. This desire is attributable to the fact that sustainable economic growth enhances the market size of a country thereby serving to project the economy as an investment destination country. Economic growth is the improvement in the ability to satisfy the desire and demand for goods and services, leading to improved production, innovation, goods and services. Ughulu (2021) reported that economic growth of any country depends on the growth of physical capital, human capital and progress in information technology. In this sense, economic growth enables a country to increase the production of goods and services with available stock of capital in conjunction with other factors of production within the economy Kenneth. (2019). The growth of all these factors requires saving and investment, which the stock or capital market plays a significant role in adequate capital formulation (Nathaniel, 2014). One of the conspicuous examples of globalization is the ease with which stock market moves around the world, especially to developing countries. Private capital flows to emerging markets have risen from $25 billion in 1990 to$300 billion by 2015. Part of this expansion in financial flows has been brought about by the growth of equity funds dedicated to investing in publicly and privately listed securities in developing countries. An efficient Stock Market is essential for adequate capital formation and economic growth in any economy. The primary purpose of the Stock Market is to facilitate the movement of capital to be used more profitability and productively to boost the national income and economic growth. The 2 capital market provides a medium of exchange where funds transfer can take place between individuals, firms and the government. Stock Market performs two significant functions of mobilizing resources from excess sources and making the funds accessible to deficit sources, there by matching individual savers' needs with firms requiring funds and the resulting capital build up that leads to an increase in economic growth. The Stock Market is a technical and specialized financial market that stimulates economic growth because of its capacity to muster savings and investment. Idenyi. (2017) Stock markets have become an important conduit through which long-term finance can be raised. The antecedents to this arise from the fact that most African countries in the immediate postindependence era chose a state-sponsored route to development. The emphasis on state-led growth meant a relatively insignificant role being assigned to private enterprise. This phenomenon was compounded by the East-West confrontation, with most development aid flowing from the eastern bloc to Africa, largely to secure ideological partners. Following the end of the Cold War however, this door to economic development was, shut, thus prompting a shift to market capitalism with its attendant stock markets. Additionally, most long-term finance was initially channeled through development finance institutions - (DFIs). However, evidence indicates that a significant amount of World Bank lending to these institutions reversed in the 1980s because of the debt and portfolio crisis faced by the DFIs (Caprio & Demirgiic-Kunt, 2018). Attention thus turned to setting up and revitalising stock markets. The revitalization of the markets has also been motivated by the growing need to promote the role of the private sector in stimulating growth (Khambata, 2019). Propose that the two main channels of financial intermediation-banks and the stock market- should complement each other. Argues that credit markets need to be supplemented by well-functioning equity markets, since equity finance does 3 not experience adverse selection and moral hazard problems to the same extent as debt finance does in the presence of asymmetric information. The existence of equity markets would thus enhance capital allocation and diversify investment risk. Acha and Akpan (2019) maintained that capital formation or accumulation of any nation is a function of various Stock Market. It is a result of domestic saving and foreign capital inflows or investment. In order to reduce the effect of macroeconomic failure on the economy, efficient and effective capital formation and accumulation is pivotal. Further, it is imperative to state that the rate of economic growth of a nation is based on an efficient capital market. Atoyebi. (2013) suggested that the Stock market drives economic growth, because it is essential for long-term capital formation. It is crucial in the mobilization of saving and channeling of such saving to self-liquidating investment. Stock market are elements or components of capital market activities that show increase or expansion, such as all share index, market capitalization, Total Number of Deals, and Total Value of Transactions. The aggregate of Stock Market forms capital market activities, which enhance economic growth and development of any nation. Economic growth is the continuous or sustained improvement in per capital income of a nation over a significant long period. Raymond (2014) maintained that the growth rate of the economy could be by raising the rate of saving and investment. The expansion in these factors determines the increase in productive capacity.
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