Stock Prices, Capital Market Development and Nigeria’s Economic Growth

The objective of the paper has been to empirically investigate the influence of stock prices and capital market development on the level of economic progress in Nigeria. This becomes necessary due to the increasing role played globally by both stock prices and capital market in generating the desired the level of economic growth. The study used time series data that covered the period from 1980 to 2012. This includes the pre-Structural Adjustment Programme (SAP) and SAP eras. The cointegration test with its implied ECM was applied. The ADF unit root test indicates that all the variables are stationary at I(1). The Johansen cointegration test indicates a long run relationship among the variables. The short run dynamic result indicates that the level of market capitalization, new issues in the capital market, value of equities and government stock rate have positive signs and are statistically significant in explaining economic growth. Results revealed that government’s policies on both stock prices and capital market have been beneficial in explaining the level of economic growth in Nigeria. The ECM shows a satisfactory speed of adjustment to equilibrium in the long-run. It is thus recommended that government should continue with her stock prices policies by further liberalizing the stock market and that the level of market capitalization should be further increased. Keywords: Stock prices, Capital market development, Economic growth, Cointegration