NEXUS AMONG ECONOMIC GROWTH, STOCK MARKET ACTIVITY AND EXCHANGE RATE MOVEMENT IN THE ORGANIZATION OF PETROLEUM EXPORTING COUNTRIES (OPEC)
Keywords:
Stock Price, Exchange rate, Economic growth, OPEC, Vector AutoregressiveAbstract
Since the work of Dornbusch and Fisher (1980) on assets pricing and exchange rate, the nexus between stock market and exchange rate has continued to receive considerable attention in the literature. Owing to this inevitable side effect of the stock market, if an economy depends heavily on the activity of the stock market, then the economic performance may likely be greatly affected. In this study, we investigated the interconnectedness among economic growth, exchange rate and stock market activity in selected OPEC countries. Monthly data from February 2010 to March, 2018 were utilized while the method of analysis employed is the Toda-Yamamoto (TY) for Iran, Nigeria and Venezuela and vector autoregressive (VAR) technique was employed in case of Kuwait, Qatar and Saudi Arabia due to the stationarity results. Findings showed that there is no causal relationship among economic growth, exchange rate and stock market activity in Iran, Kuwait and Saudi-Arabia. In Nigeria, no bi-causal relationship exists between stock market activity and exchange rate, but a unidirectional relationship running from stock market activity to economic growth was observed. In Venezuela, there is a bi-causal relationship between exchange rate and stock market while in Qatar, a unilateral causation running from exchange rate to economic growth was observed. Causal relationships differ across Petroleum Economic Countries’ exchange rate, stock market activity and growth. The implication of this result is that to the extent that oil quantity and price are major driving force of their economic activity, countries whose growth is caused by stock market activity need to be wary of this action. Based on the results, a couple of recommendations are proffered on country-specific level. Generally, it is imperative for countries to come up with a favourable macroeconomic coordination that will dampen the negative causal effect. Such macroeconomic coordination could be centered on stock market activity.
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