GOVERNMENT EXPENDITURE AND STOCK MARKET PERFORMANCE IN NIGERIA

ABSTRACT

This study examines the effect of Government Expenditure (GE) on Stock Market Performance (SMP) in Nigeria. Time series data were sourced from the Central Bank of Nigeria (CBN) Statistical Bulletin from 1980 to 2021. SMP is proxied with MCAP and ASI while expenditure on agriculture, defence, education and health formed components of government expenditure; to form the MCAP model and the ASI model. The FM-OLS and ARDL methodology were adopted to ascertain the short and long run effect of GE on SMP in Nigeria. The preliminary test of descriptive statistics, correlation analysis, ADF unit root test and Engle and Granger co-integration test were carried out. Findings show that both in the short and long run period GE on education, defence and agriculture have significant influence of SMP in the long run via MCAP channel. GE on defence and agriculture has significant effect on SMP in the short run via ASI channel. Hence, this study concludes that GE components are key determinants in explaining the effect of government spending on SMP in Nigeria. The magnitude of this effect is a function of stock market proxy used.