Impact of the Capital Market on the Nigerian Economic Growth

International Journal of Research and Innovation in Social Science (IJRISS) | Volume VI, Issue VI, June 2022 | ISSN 2454–6186

Impact of the Capital Market on the Nigerian Economic Growth

Yusau Audu Abayomi¹ & Umoru Adejo Yakubu^2
1 Department of Business Administration and Management Science, Federal Polytechnic, Kaura-Namoda.
²Liberal Studies Department, Federal Polytechnic, Kaura-Namoda.

Abstract: This study examines the impact of the capital market on the economic growth of Nigeria. Time-series of data on Gross Domestic Product, Equity, Government stock, Bond and Preference shares as well as foreign direct investment between 1985 and 2019 were collected from the CBN statistical bulletin, the SEC bulletin and the World Economic Indicators. The Autoregressive Distributed Lag (ARDL) model was used with the aid of E-view 10. The result of the analysis reveals a long-run relationship between economic growth and the capital market. ARDL bound test shows equity, government stock has a significant positive relationship with economic growth while foreign direct investment and bonds & preference shares have an insignificant negative relationship with economic growth. The (ECM) indicates yearly convergence of approximately 44 % of short-run shock or disequilibrium is corrected. It is therefore recommended that the government through the NSE policies should be geared to encourage more private limited liability companies and informal sector operators to access the market for fresh (equity) capital and the government should curtail the spate of insecurity to boost investor confidence in the Nigerian business environment.

Keywords: Capital market, Economic growth, ARDL and ECM.

I. INTRODUCTION:

Promoting sustained, inclusive and sustainable economic growth full and productive employment and decent work for all is the goal eight (8) of the Sustainable Development Goal (SGD) agenda of the United Nation. In this document; a sustained 7% annual growth of the Gross Domestic Product in the least developed countries is recommended. For this goal to be achieved, both government and private firms need to close the funded gaps required to provide infrastructures and established new firms or expand existing ones. However, these can only be achieved through a vibrant and strong capital market which provides the platform for fund seekers to connect with fund owners. The Nigerian capital market has had its fair share of the business cycle in the recent times. The economy witnessed two economic recessions in the last six years as well as the effect of the COVID-19 pandemic that led to a lockdown across the world. These developments led to a slow-down in investment, and in-turn harmed the economy (Nweze & Nnadi, 2021). The capital market, despite this economic downturn, has been the most effective mechanism for Nigerian businesses to raise medium and long term finance. The Nigerian stock exchange, in particular, has remained the mechanism for price determination and sources of capital which has made it possible for businesses seeking an alternative method of

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