Capital market and industrial output growth nexus in Nigeria

Abstract

The study specifically seeks to investigate the extent of the relationship that exists between the capital market and industrial output growth in Nigeria; to identify the drivers of industrial output growth in Nigeria. This research work is informed by the need to revive the sinking Nigerian industrial sector. The Augmented Dickey-Fuller (ADF) test, Autoregressive Distributed Lag (ARDL) technique and the stability and the short-run diagnostics and stability for ARDL Model were employed in the analysis. The variables employed include – industrial output growth, stock market capitalisation (% GDP), broad money supply (% GDP), credit to private sector (% GDP), investment expenditure (% GDP), prime lending rate, official exchange rate of Naira vis-à-vis the US Dollar, inflation rate and labour force (% GDP). The results show that all the variables are not stationary of the same order of co-integration, hence the need for the use of Autoregressive Distributed Lag model (ARDL). Also, ARDL Bound test indicates that there is a unique long run relationship between dependent and independent variables used in the study. However, the study acknowledged in the hypothesis one of the study that capital market has positive significant effect on industrial output growth in Nigeria. The study also admitted in the hypothesis two that, prime lending rate, inflation rate and labour force are not a significant factor that drives industrial output growth in Nigeria. While exchange rate is a significant factor that drives industrial output growth in Nigeria. Some of the recommendations made in this study are that – policies guiding capital market should be maintained since they foster growth of the industrial sector in Nigeria. The funds raised by government in the form of government securities in the capital market should be put into productive sectors of the economy that will necessitate to growth in all facets of the economy.