Global Journal of Commerce & Management Perspective
Open Access

Abstract

Capital Market, Financial Deepening and Nigeria’s Economic Growth: Cointegration and Error Correction Model Approach

Raymond Osi Alenoghena

This study investigates the contributions of capital market and financial deepening to economic growth in Nigeria over the period of 1981 to 2012. The analysis involves examining the stochastic characteristics of each time series variable by testing their stationarity using Augmented Dickey Fuller (ADF) test and estimates the error correction mechanism model. Several variables were adopted as proxies for capital market and financial deepening. The study revealed that Stock Market Capitalisation (MCAP), Narrow Money Diversification (NMD; involving credit to private sector) and Interest Rate (INT) significantly impacted the promotion of economic growth of the country during the period of study. Though, other measures of liquidity represented by Financial Development (FID) and Monetisation Ratio (MTR) were not significant in explaining the trend in economic growth, they exhibited very strong coefficients in the process. It was recommended that Government and other stake holders in the economy should take measures to further improve the liquidity of the financial market to enhance overall economic efficiency in the country. The focus of policy targets should be specific in the expansion of credit to the producing sectors of the economy and further monetization of the economy by extending financial services to deficient locations. In addition to proper monetary policy management the study further recommends that concrete steps be taken to improve the performance of the Nigerian Stock Market.