Empirical Analysis of the Impact of Capital Market on Economic Growth in Nigeria (1980-2010)

Abstract

The Nigerian capital market had not been performing effectively in terms of providing long term capital needed by firms to finance capital projects. This cast doubts on its ability to meaningfully enhance the growth of the economy against the apriori expectations amidst different reforms that were introduced by the government. This study examines the effectiveness of the Nigerian capital market in stimulating economic growth in Nigeria using secondary data relating to GDP [Gross Domestic Product] as well as new issues, volume of transactions and market capitalization of the Nigerian Stock Exchange between 1980-2010 which were formulated into an over parameterized error correction models (ECM₁) and ECM₂) and analysed using residual plots, Granger causality test, Johansen co-integration test and Augmented Dickey-Fuller unit root test. The study reveals that the capital market enhances capital formation with a positive impact on Nigerian economic growth and recommends that the regulatory authority should initiate policies that will facilitate more access to the market and remove impediments to trading by improving surveillance in order to prevent sharp practices that may erode the market's integrity and investors' confidence.

Keywords: Economic Growth, Capital Market, Gross Domestic Product