The Nigerian capital market-growth Nexus: A Johansen System-VECM approach

Abstract

This study investigates the impact which capital market has on economic growth in Nigeria. The period which the study covers is from 1985 to 2018 .The dependent variable is economic growth proxied by Real Gross Domestic Product (RGDP), while the independent variables are stock market turnover ratio (SMTOR), market capitalization (MCAP), financial deepening index-M2/GDP-(FINDEEP) and all-share index(ASI). The results of the VECM indicated that all the independent variables of interest (SMTOR, MCAP, FINDEEP, ASI) and their lags, in the short run, are not statistically significant with relation to economic growth in Nigeria for the period under study. In the long run, however, all the independent variables are statistically significant. SMTOR and MCAP have a t-statistics value of 7.25267 and 2.45105, which are positively significant. In the same vein, FINDEEP and ASI have t-statistics value of -8.24 and -9.05 which are negatively but statistically significant. ECM indicated that takes a 13.64% speed of adjusting or converging to bounce back to equilibrium in the long run in a situation of shock. The paper concludes that capital market has greatly helped in the growth of the Nigerian economy for the period under review. The study therefore recommends that regulators should ensure that investors’ confidence are restored and sustained.