The impact of capital market on the economic growth of Nigeria
Department of Finance, University of Lagos, Lagos, Nigeria.
Review Article
GSC Advanced Research and Reviews, 2024, 21(01), 013–026.
Article DOI: 10.30574/gscarr.2024.21.1.0303
Publication history:
Received on 01 July 2024; revised on 07 September 2024; accepted on 10 September 2024
Abstract:
This study investigated the impact of capital market performance on economic growth in Nigeria through the development of a multiple regression model. Utilizing data from 1981 to 2019 sourced from the Nigerian Stock Exchange, Securities and Exchange Commission, and Central Bank of Nigeria, the research examined the relationship between four explanatory variables—market capitalization, all share index, value of transactions, and number of listed securities—and the dependent variable, real Gross Domestic Product (GDP). Grounded in the neoclassical growth model, endogenous growth model, efficient market hypothesis, arbitrage pricing theory, modern portfolio theory, and capital asset pricing theory, the study employed the ordinary least squares technique for estimation. The methodology included rigorous statistical tests such as the Augmented Dickey-Fuller test for stationarity, Breusch-Pagan-Godfrey test for heteroskedasticity, and Cusum test for stability. Results indicated that 97.9% of the variation in real GDP could be explained by the selected capital market indicators. Market capitalization and the all share index were identified as significant predictors of economic growth at a 5% significance level in the long run, with a speed of adjustment of 98% annually. The adjusted R-squared value of 97.6% confirmed the model's robustness. The study concluded that market capitalization and all share index significantly influenced the economic growth of Nigeria in the long run, although some findings diverged from a priori expectations. Policy recommendations were proposed to address these discrepancies and enhance the positive impact of capital market development on Nigeria's economic growth.
Keywords:
Capital Market; Economic Growth; Investment; Financial Development; Nigeria
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