The study investigated the effect of capital market on economic growth in Nigeria. It also determined the causal relationship between capital markets on economic growth. The study covered the liberalised economic era in Nigeria starting from 1987 to 2021. The study employed new issues, market size, market liquidity, market volatility and bond market size as proxies for capital market to determine the nexus with economic growth. Data were obtained from the Central Bank of Nigeria statistical bulletin and analysed using the ARDL regression and granger causality tests. The results showed that (1) New Issues has no significant long and short run effects on economic growth but economic growth granger causes new issues, (2) Stock Market Size has a negative long run significant effect; a mixed short run effect of positive in the initial period and negative in later years but no causal relationship with economic growth, (3) Stock Market liquidity has significant and positive long run and short run effects but no causal relationship with economic growth, (4) Stock Market Volatility has insignificant negative long run effect; a mixed positive and then negative effect in the short run but no causal relationship with economic growth, and (5) Bond Market Size has significant and negative long run and short run effects but no causal relationship with economic growth in Nigeria. The study concluded that capital market follows the demand following hypothesis as economic growth determines one of the capital market variables (new issues). The capital market size, liquidity and volatility have no causal relationship with economic growth which depicts the neutrality hypothesis that the financial market (nee capital market) and economic growth has no recourse to each other in development. The recommendations put forward by the study include that existing firms in Nigeria should be encouraged to assess the capital market for business financing; and the need for effective supervision of stock market activities. The outcome of the study contributed immensely to new knowledge in capital market and economic growth nexus by debunking the sought-after finance-led theory in support that the development of the capital market should drive economic growth.
Capital market, stock market size, bond market, market liquidity, market volatility, Nigeria
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