DETERMINANTS OF STOCK MARKET DEVELOPMENT IN EMERGING ECONOMIES: EXPERIENCE FROM NIGERIA

Research Problem: Although stock market development is widely recognized as a driver of economic transformation, limited empirical research has thoroughly examined its key macroeconomic determinants within Nigeria over an extended period. Despite ongoing financial reforms and increasing integration into the global economy, the mechanisms through which foreign direct investment (FDI), trade openness, economic growth, and financial development influence Nigeria’s stock market remain insufficiently explored, particularly in the context of persistent structural and institutional vulnerabilities. Methods/Theory: This study adopts the Endogenous Growth Theory and the McKinnon–Shaw Hypothesis to provide a theoretical foundation for understanding stock market behaviour in a developing economy. Annual secondary data spanning 1990 to 2024 were sourced from the World Bank. The analysis combined descriptive statistics, unit root diagnostics, Johansen cointegration, and the Vector Error Correction Model (VECM) to capture both long-run equilibrium relationships and short-run adjustment dynamics among the variables. Results: The findings indicate that FDI exerts a negative and significant long-run effect on stock market capitalisation, reflecting the predominance of foreign investment in non-market sectors and the impact of profit repatriation. In contrast, financial development and trade openness show positive and statistically significant influences, underscoring the importance of domestic financial deepening and global integration in stimulating stock market growth. Economic growth, however, demonstrates an insignificant relationship, suggesting weak linkages between macroeconomic expansion and capital market performance. Short-run results further reveal sluggish adjustment processes, with financial development imposing a contractionary effect on the stock market. Conclusion: Stock market development in Nigeria is shaped by complex macroeconomic interactions and remains sensitive to structural challenges. While openness and financial deepening support long-term growth, the negative role of FDI and weak short-run adjustments highlight institutional gaps that constrain market performance. Key Contribution to Knowledge: This study enriches financial economics literature by offering a robust long-term analysis of macroeconomic determinants of stock market development in Nigeria using contemporary data and advanced econometric techniques. It provides new insights into how external and domestic factors collectively shape capital market outcomes. Recommendation: The study recommends targeted policies that redirect FDI toward productive, market-linked sectors, reinforce the capacity and governance of financial institutions, and enhance transparency within the capital market. Further comparative research across African and emerging economies is encouraged to strengthen regional financial integration and inform broader policy reforms.