Abstract
This study empirically examined the impact of capital market development on economic growth in Nigeria for the period 1981-2008. The major tool we employed for empirical analysis is a multiple
regression analysis model specified on the basis of hypothesized functional relationship between
capital market development and economic growth. For capital market development indicators,
we considered ratios of value of shares traded, market capitalization, gross capital formation and
foreign private investment, to gross domestic product, as explanatory variables, while we used
growth rate of gross domestic product as the dependent variable. We introduced an error correction
term to capture the flexibility in adjustment to long-run equilibrium. We estimated the model via the
ordinary least squares (OLS) techniques. Further, we evaluated the model using relevant statistics.
The results showed that while market capitalization, gross capital formation, and foreign private
investment individually exerted statistically significant impact on growth of the economy, value of
shares traded exerted positive but statistically insignificant impact during the review period. However,
the variables jointly exerted statistically significant impact on growth of the economy. In addition,
the model exhibited a very high explanatory power and high flexibility in adjustment to long-run
equilibrium. The variables time series were stationary at second difference, showed existence of
long-run relationship between the two sets of variables, and exhibited stability for the study period.
Based on the findings, the study recommended, among others, sustainable development of the capital
market to enhance faster rates of capital accumulation for greater productivity gains and economic
growth as well as the need to complement market development with real sector macroeconomic
policy thrust like significant reduction in lending rates to stimulate investment and manufacturing activities in the real sector and translate capital market gains to real sector output growth.
