The Nigerian Stock Market is considered to be the third largest in Africa and has a strong effect on the development of the Nigerian economy. Let’s see how the Nigerian economy and stock market work together. We will find out if Nigerian economy benefits from the stock market, and what the importance of stock exchange is.
The stock market or “Pursuit of Happiness”
The stock market or share market is a community for sellers and buyers. The large network of economic transactions does not require physical facility, instead, there are a lot of companies’ employees, who are there represent their own interests.
In 1960, the Nigerian stock market was established and at the time, it was known as the Lagos Stock Exchange. The stock exchange is not only a platform for sharing but a marketplace where companies raise their capital and profits.
At the market, shares are delivered to the public and shareholders can trade by the use of the name of these companies. For many years, the Nigeria stock exchange helped to increase the financial resources of the country and cooperated with existing financial institutions.
Importance and impact of stock market on economic growth
Stock market contributes to the economic growth of the country directly or indirectly. The main functions of the stock market are risk diversification, mobilization of savings, the creation of liquidity, improvement of dissemination, acquisition of information, and corporate control. As these factors improve, the positive impact of the stock market on economic growth will become more apparent.
In Nigeria, the greatest impact of stock market on economic growth happened between 1980 to 2000. There has been a lot of positive interaction between the economic growth and stock market in Nigeria.
It is a known fact that an increase in a country’s income is very crucial for the economic growth of that country. The higher profit the country makes, the more savings can be reserved. This may, in turn, help in boosting stock market activities.
For the economy to grow and the stock market to thrive, there must be political stability in the country, which is usually hard to manage.
The threats of stock exchange
Due to legislation and policy instability, the stock market for some specific periods of time was not so strong. A stronger stock market and economic growth can only be achieved in an appropriate environment.
Studies have shown that it is important for the country to pass some serious laws and policies in order to improve the development of the stock market and stimulate economic growth. One of the most discussed ones is the liberalization of portfolio and dividend flow.
The Nigerian stock market undoubtedly helps to raise the economy level. In order to see more impact of the stock market on the economy, the government needs to stabilize the macroeconomic environment.
In addition, a great attention should be paid to investment promotion in the stock market. All these will not only help to integrate Nigerian stock market but also to develop stock exchange’s impact on the economy of the country.
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