Capital Market ·Development and Economic Growth - The Case of Nigeria.

This paper investigates the relationship bt:tween capital market development and economic growth using Nigerian data on GDP (proxy for economic growth), market capitalization ratio, va lue traded ratio and stock market turnover ratio (proxies for capital market development) over the period l981- 2014.Employi ng the econometric methodology of the vector enor coiTection model, the study shows that in th e short-run, market capitalization ratio and turnover ratio have significant negative effect on aggregate national output (GDP). The study also shows positive effect of value traded ratio as well as negative effect of inflation rate on GDP though not significant. The long-run estimate shows that all the exogenous variables have significant negative impact on GDP and that changes in market capitalization ratio, value traded ratio and turnover rat io produce more than proportionate changes in GDP. With an adjustment speed of about 91.12 per cent, the model presents an inherent capacity to overcome short-run disequi librium. The Granger causality test shows evidence of causal impact of marke"r capitalization ratio, value traded ratio and turnover ratio on aggregate national output. The study fu rther shows uni-directional causality from GDP to inflation. The paper established therefore that stock market development constitutes a significant determinant of economic growth in Nigeria