Empirical Analysis of the Impact of Capital Market Development on Economic Growth in Nigeria

Capital market development mobilises long-term savings and allocates capital to productive investment, and empirically examining its growth effects in Nigeria provides evidence for capital market policy and institutional reform. This study empirically analysed the long-run impact of capital market development on economic growth in Nigeria using annual data from 1986 to 2022. Capital market development was proxied by stock market capitalisation as a share of GDP, stock market turnover ratio, and value of stock trading. GDP per capita growth served as the dependent variable. An ARDL bounds test was applied, followed by error correction modelling. Granger causality tests identified the direction of causality. Results confirmed a long-run cointegrating relationship between capital market development and economic growth. Market capitalisation showed a significant positive long-run coefficient of 0.29 (p < 0.01). Turnover ratio showed a positive but smaller coefficient, reflecting market liquidity constraints. Granger causality tests confirmed supply-leading causality from capital market to growth in both short and long run. Stock market volatility negatively moderated the capital market-growth relationship. The study provides original empirical evidence filling gaps in Nigerian capital market-growth literature and recommends SEC deepening market liquidity through market maker incentives, demutualising the Nigerian Exchange Group, expanding corporate bond market development to supplement equity financing, and developing derivatives markets to manage investment risk. Keywords: capital market development, economic growth, Nigeria, stock market, ARDL