CAPITAL MARKET DEVELOPMENT AND ECONOMIC GROWTH IN NIGERIA: AN EMPIRICAL ANALYSIS

O P Ologunwa, O V Sadibo

Abstract



In the recent times, the literature appears to emphasize a sound capital market as an
important driver of economic growth due to its ability to provide liquid asset for investment.
The issue raised in this paper is about the effect of capital markets on economic growth. If a
strong capital market is a panacea to economic growth, why do least developed economies
not embrace it? To what extent can economic growth be affected by capital markets? These
issues were theoretically explained in the methodology and the data analysis was subjected
to empirical test. Using aggregate data for growth indicators and capital market indicators,
we adopted a structural dynamic model to investigate the issue. It was found that capital
market ratio and turnover ratio are both significant and positive drivers of economic growth
in Nigeria and that stock markets affect economic growth through savings mobilization. It is
asserted that large, liquid and efficient stocks markets can ease savings mobilization. The
paper recommends that stock market should be made attractive to foreign economies,
although it can also spell doom during a burst. However, if the funds had been carefully
utilized the economy may not be significantly affected during a burst.


Keywords:capital market, market capitalization, turnover ratio; economic growth

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