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Economic development is regarded as the major goal of national policy in any economy, while capital accumulation or formation is also seen as a potent factor in the process of economic development. It is regarded as the core process by which all other aspect of growth is made possible and feasible. However, the rate of economic development is always limited by shortage of productive factor and if any scarce factor associated with development should be singled out, it will be finance (capital).

A major engine of economic growth and development of a nation is its capital. It impacts positively on the economy by providing financial resources through its intermediation process for the financing of long term projects. The projects could be promoted by government or private sector institutions. They are usually in such areas as infrastructure, agriculture, solid minerals, manufacturing, banking and other financial services and other real sector areas. Hence without an efficient capital market, the economy may be starved of the required long-term fund for sustainable growth.

The capital market has been identified as an institution that contributes to the socio-economic growth and development of emerging and developed economies. This is made possible through some of the vital roles played such as channeling resources, promoting reforms to modernize the financial sectors, financial intermediation capacity to link deficit to the surplus sector of the economy, and a veritable tool in the mobilization and allocation of savings among competitive uses which are critical to the growth and efficiency of the economy (Alile 1984). It helps to channel capital or long-term resources to firms with relatively high and increasing productivity thus enhancing economic expansion and growth (Alile 1997). Ekundayo (2002) argues that a nation requires a lot of local and foreign investments to attain sustainable economic growth and development. The capital market provides a means through which this is made possible. However, the paucity of long-term capital has posed the greatest predicament to economic development in most African countries including Nigeria.

Based on its importance in accelerating economic growth and development, government of most nations tends to have keen interest in the performance of its capital market (Ewah, Esang and Bassey, 2009). The capital market has been identified as an institution that contributes to the socio-economic growth and development of emerging and developed economies (Donwa and Odia, 2010). Generally speaking, the importance of the capital market to any economy (developed or emerging) cannot be overemphasized. A direct linkage has been discovered to exist between the capital market of a nation and its economic growth. Linkages were also found to exist between foreign direct investment (FDI), stability of capital market (which will indicate stability in the economy), sources of finance for economic development, investment avenue for surplus fund etc and the capital market. (Oladipupo, 2010).

The importance of capital market as an efficient channel of financial intermediation has been recognized by the researchers, academicians, and policy makers as a primary determinant of the economic growth of a country globally. Previous studies (Kolapo and Adaramola, 2012; Odetayo and Sajuyigbe, 2012; Afees and Kazeem, 2010; Chiwuba and Amos, 2011; Petru-Ovdiu Osamwonyi, 2005 and Agarwal, 2001) agree with the view that efficient financial intermediation is crucial to economic development and positively influences growth and development. Capital market offers access to a variety of financial instruments that enable economic agents to pool, price and exchange risk. Through assets with attractive yields, liquidity and risk characteristics, it encourages savings in financial form. This is very essential for government and other institutions in need of long-term funds and for suppliers of long-term funds (Nwankwo, 1991).

Osaze (2000) sees the capital market as the driver of any economy to growth and development because it is essential for the longterm growth capital formation. It is crucial in the mobilization of savings and channeling of such savings to profitable self-liquidating investment. The Nigerian capital market provides the necessary lubricant that keeps turning the wheel of the economy. It not only provides the funds required for investment but also efficiently.

The Nigerian capital market has continued to play its traditional role of mobilizing medium to long-term funds for development purposes. The Securities and Exchange Commission (SEC) is the regulatory authority of the market and the operational institutions are the Nigerian Stock Exchange, the issuing houses and the stock broking firms. The capital market consists of the primary market for new issues of securities and the secondary market for trading in existing securities. So far, trading floors exist at Kaduna, Kano, Port Harcourt, Onitsha, lbadan and Abuja. Activities in both markets have increased tremendously over the years. The activities of capital market have been boosted by the privatization programme (Sunday, Ewah and Jude, 2009). Pagano (1993) identifies three fundamental channels through which capital markets and economic growth may be linked: First, capital market development increases the proportion of savings that is funneled to investments; second, capital market development may change the savings rate and hence, affect investments; third, capital market development increases the efficiency of capital allocation.

The capital market has undergone tremendous reforms in recent years. Among these is the introduction of Central Securities Clearing System (CSCS), an automated clearing, settlement and delivery system aimed at easing transactions and fostering investors’ confidence in the market. Equally important is the linking of performance information on the Nigerian Stock Exchange to Reuters International System in order to disseminate relevant market information to subscribers. However, poorly functioning capital markets typically are illiquid and expensive which deters foreign investors. Illiquid and high transactions costs also hinder the capital raising efforts of lager domestic enterprises and may push them to foreign markets.


The Fundamental questions which has intrigued and preoccupied economists for a long time are mainly two-fold, namely; why do countries grow over time, and what accounts for the differences in the growth rates of countries. A number of explanations have been advanced in the literature to account for these spatial-temporal differences in growth. These include resource endowments, international trade, factor accumulation, institutional and educational development, well-defined and enforceable legal and property rights, macroeconomic and political stability, and the degree of openness of the economy.

However, since the seminal work of Goldsmith (1969), a large and interesting literature has evolved on the role and importance of the financial system in fostering economic growth (Levine, 1997). In many African countries, a considerable part of the last few decades was spent reforming financial sectors with a view to facilitating the growth of savings and increasing the rate of return of productive investment. The need to achieve substantial growth in savings arose because African saving rates of 17.2 percent of GDP in the 1990s were not only far below the East Asian average of 37.5 percent during the same time, but far less than was desirable to achieve the growth fillip needed to lift millions of out poverty in Africa.

Despite the popular belief that economic activities engender economic growth, the growth of the capital market in Nigeria is still very small in relation to the size of the economy. A consensus has emerged in recent times, which asserts that economic growth in a modern capitalist economy almost certainly revolves around an efficient capital market that is able to pool domestic savings, mobilize foreign capital, and allocate the sum to the most productive sectors of the economy. CBN (2007) has it that a comparative analysis of equity market capitalization of the Nigerian capital market with some countries in North and South America, Asia, Europe and Africa shows that the Nigerian market is relatively very small. Worse still are the attendant ugly consequences of the capital market meltdown, characterized by the crash of the market capitalization from a high record of N13.5 trillion in early 2008 to less than N4.5 trillion in the corresponding period of 2009. This development necessitated an investigation by the House of Representatives, through its committee on Nigerian capital market, of the circumstances surrounding the 2009 crash of the Nigerian capital market, and this investigation is otherwise known as the capital market probes. However, given these scenario, one begin to wonder if the Nigerian capital market has really fared well in terms of its impact on the growth of the Nigerian economy.

In the light of the above background, the question that would readily come to mind is whether or not capital market has significantly impacted on the growth of the Nigerian economy, given the enabling environment provided to the capital market. Hence the research seek to answers the following research questions:

  • Does market capitalization have impact on GDP growth in Nigeria?
  • What is the impact of all-share-index on economic growth in Nigeria?
  • What is the relationship between the volume of shares traded and economic growth in Nigeria?


The general objective of this research work is to evaluate the impact of the capital market on economic growth in Nigeria.

Specifically, the research seeks to:

  • explore the empirical relationship between market capitalization and GDP growth in Nigeria
  • explore the impact of all-share-index on economic growth in Nigeria
  • establish the relationship between the volume of shares traded and economic growth in Nigeria


The research seeks to analyze the following hypotheses and they are stated in a null form:

(1).      There is no significant relationship between Market capitalization and economic growth in Nigeria.

(2).      There is no significant relationship between All-Share-Index (ASI) and economic growth in Nigeria/

(3).      There is no significant relationship between Volume of shares traded and economic growth in Nigeria


The research study will employ time series data covering the period 1990-2012 which coincided with the period of boom and doom of the capital market in Nigeria. This research work is different from previous studies in scope. An advantage of using a data set that spans over a long period of time is that, it increases the degree of freedom and therefore enhances the robustness and credibility of the results.


The issue of capital market operations as well as stimulation of economic growth have been featuring in several yearly budgets, symposia, journals, term papers, as well as local and international conferences as can be seen in CBN, IMF, World Bank.

Suffice to say that the research study will be of utmost significance to investors (local and foreign), governments, consultants, researchers and the general populace.


Every research conducted has certain limitations. Despite the best intention of the researcher, the collection of data in relation to the usefulness of the capital market on economic growth in Nigeria will be limited due to sources of data.