Stock Market Efficiency and Economic Diversification in Nigeria and South Africa

Abstract

The persistent reliance on natural resources has limited the resilience and sustainability of African economies, particularly Nigeria and South Africa. This study examines the impact of stock market efficiency on economic diversification, focusing on how capital market development influences non-resource GDP growth in the two countries. Specifically, it investigates the effects of market capitalization, stock market turnover ratio, and the number of listed companies on diversification performance between 2000 and 2024. The study adopts a comparative ex-post facto design using secondary data sourced from the World Bank (WDI), IMF Financial Development Index, and official statistics from NGX and JSE. Analytical techniques include descriptive statistics, correlation matrix, diagnostic tests, and panel regression analysis. Results reveal that market capitalization and turnover ratio exert positive and significant effects on non-resource GDP growth in both countries, while the number of listed companies is marginally significant. South Africa’s capital market demonstrates greater depth and efficiency, reflected in its higher R² (0.76) compared to Nigeria’s (0.71). These findings confirm that robust and liquid capital markets are instrumental in financing non-resource sectors and advancing structural transformation. The study concludes that financial deepening and inclusiveness drive sustainable diversification and recommends that Nigeria strengthen investor confidence and listing incentives, while both countries should improve market liquidity and broaden SME participation.