Stock Market Development and Economic Growth in West Africa: An Econometric Study

Abstract

West Africa presents an unique laboratory for examining stock market-growth dynamics. The theoretical foundation for stock market influence on growth operates through several channels (Begum et al., 2025).  Despite their potential, the markets face significant challenges including limited liquidity, regulatory inefficiencies, and low investor participation that may constrain their developmental impact (Bhattarai et al., 2021; Dorjdagva et al., 2024). This study explores the relationship between stock market development and economic growth in five West African countries—Nigeria, Ghana, Côte d’Ivoire, Senegal, and Mali—using balanced panel data covering 2005 to 2020. Employing fixed effects, random effects, and system GMM estimators, the study investigates how market capitalization, trading volume, turnover ratio, and number of listed companies influence GDP growth, while controlling for macroeconomic and institutional factors. Results show that market capitalization has a positive and significant impact on GDP growth (β = 0.043, p < 0.05), with trading volume also showing a marginally significant effect (β = 0.234, p < 0.10), while turnover ratio remains insignificant (β = 0.012, p > 0.10). Listed companies per million population exhibit a positive effect (β = 0.567, p < 0.10), and interaction terms reveal that governance quality strengthens the impact of stock market development (β = 0.018, p < 0.10). Country-specific regressions show higher effects in Nigeria (β_MCAP = 0.052; β_TVT = 0.289) and Ghana (β_MCAP = 0.061; β_TVT = 0.267), with R² values of 0.612 and 0.584, respectively, compared to weaker effects in Mali (β_MCAP = 0.019; R² = 0.278). Panel Granger causality tests confirm bidirectional causality between market capitalization and GDP growth (p = 0.019 and 0.026, respectively). The study concludes that stock market development modestly but significantly contributes to economic growth, particularly in countries with higher institutional quality, and recommends policies that enhance market depth, governance, and regional integration.