Capital Market Development and Economic Growth in Nigeria



The paper examined the effect of a well developed capital market on economic growth in Nigeria. We developed a model that is able to investigate how capital market development affects business cycle volatilities, and in the long run economic growth through the use of multi-variable regression analysis. Unit root test was conducted and all our estimating variables were stationary at first difference except the Christiano-Fitzgerald filter which shows that our model interpretation would not be spurious and a true representation of the relationships that exists between the explained and explanatory variables. Error Correction Model was introduced in our estimation in order to have a parsimonious model. Insignificant variables such as Net Export were removed from our model. This can be understood from the reasoning that Nigeria remains a mono-cultural economy (oil dependent) and is seen by the export shocks being negative and significant from our earlier regression result. From our result, all our variables (market capitalization, gross fixed capital, and structural activity) all have a positive but fairly insignificant impact on economic growth. The volatility measure on the other hand had a negative but highly significant impact on economic growth which supports the endogenous growth model that developing countries (Nigeria inclusive) are highly susceptible to macroeconomic shocks such as money supply shocks, export supply shocks, productivity shocks, etc). In addition, Engle-Granger co integration test was done and showed the existence of a long run relationship between capital market development and economic growth in Nigeria. We recommend adopting a policy framework that address the weak linkages between net export and the rest of the Nigerian economy by diversification, creating conducive environment that allows domestic investors to invest in the capital market and removing all impediments to local businesses. Finally, government securities should be channelled to more productive sectors to complement those in the private sector.


Capital Market, Economic Growth, Engle-Granger, Volatility

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