The Impact of Public Expenditure on Stock Market Performance in Nigeria and South Africa
Keywords:
Capital expenditure; official exchange rate; public expenditure; recurrent expenditure; real interest rateAbstract
Objectives: This study comparatively examines how recurrent and capital public expenditure affect stock market performance in Nigeria and South Africa over the observation period 2000 – 2024. Prior Work: Fiscal policy’s link to macroeconomic growth in both countries is well studied, but its transmission to stock market performance remains under-explored, with comparative cross-country evidence scarce. Approach: The study employs a fully modified ordinary least squares estimator for individual country estimations, and a panel estimated generalised least squares approach with cross-section weights for the joint analysis. Data were sourced from the World Development Indicators and the Federal Reserve Economic Data databases. Results: In Nigeria, recurrent expenditure and the exchange rate significantly enhance stock market performance, while capital expenditure and interest rate are insignificant. In South Africa, capital expenditure has a dominant positive influence, while other variables are insignificant. Pooled results show both expenditure types jointly promote stock market growth, with interest rate and exchange rate insignificant. Implications: Nigeria’s reliance on short-term recurrent spending signals a need to build capital-expenditure capacity, while South Africa should strengthen fiscal discipline to sustain its capital-investment-driven market gains. Value: The study provides original comparative evidence from Africa’s two largest economies, showing that expenditure composition and institutional context jointly shape financial market development.
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