Nexus between stock market and agricultural sector development in Nigeria and South Africa: Accounting for three-regime marginal-threshold effects

Abstract

This study empirically examined the link between stock market development and agricultural sector development, accounting for the effect of a three-regime marginal and threshold of interest rate, inflation and exchange rates. The study utilized annual time series data, focusing on two African countries – Nigeria and South Africa for the period 1980 to 2021. The dynamic Autoregressive Distributed Lag (ARDL) estimation technique was adopted as a baseline model while FM-OLS was employed for the sensitivity test. The findings from the baseline model revealed a significant long-run positive association between market capitalization, all-share index, value of traded shares, and agricultural development. However, the turnover ratio was insignificant but exhibited a significant long-run relationship when the interaction effects of interest rate, inflation, and exchange rate were controlled for. The FM-OLS sensitivity estimates were found to coincide with the earlier results. At the country level, evidence from the baseline and sensitivity model revealed that market capitalization and the all-share index in Nigeria have a significant positive link with agricultural development, whereas all measures of stock market development in SA were positively and significantly related to agricultural development. The study recommends policies that promote stock market development to boost its contribution to agricultural development. In addition, credible measures to manage the three regimes' adverse impact on agricultural development should be developed to prevent its damaging effects on stock market development and its influence on agricultural development.