The Capital Market and Performance of the Nigerian Economy: A Time Series Analysis

Abstract

A vibrant capital market plays a crucial role in promoting the growth and development of the economy. This study examined the performance of the capital market and its impact on the economic growth of Nigeria. Using a time series data covering a period of 26 years (1985–2010) and employing the econometric tool of co-integration analysis, the study empirically established a strong link between a dynamic capital market and economic development. The result of the study reveals a strong correlation between economic growth and the independent variables. This is clearly shown in the very high R2, adjusted R2, and F–ratio of 81.7%, 79.3% and 32.95250 respectively. With the exception of All Share Index, the other two regressors do not have significant impact on economic growth of Nigeria within the period of study. On the whole, 81.7% variation in economic growth in Nigeria is explained by the model. The long run relationship showed that only market capitalization impact significantly on the GDP. In the same manner the short run error correction model still indicates that market capitalization impacts positively on the economy. The study therefore recommends the pursuit of policies that would improve the depth and breadth of the Nigerian capital market so as to engender a rapid
development of the market that would result in the economic growth and development of the economy.

Keywords: All Share Index, Capital Market, Economic Growth, Cointegration, Unit Root.