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Title Page
Table of Contents

1.1       Background of the study
1.2       Statement of Research Problem
1.3       Research Questions
1.4       Objectives of the Study
1.5       Research Hypotheses
1.6       Significance of the Study
1.7       Scope of the Study

2.1       Introduction
2.2       An overview of the Nigerian Capital Market
2.2.1:   The Financial Markets
2.2.2Secondary Market: The Nigerian Stock Exchange
2.3       Conceptual Literature
2.3.1    Financial Market
2.3.2    Economic Growth
2.3.4    Review of Recent Economic/Financial Sector Reforms in Nigeria (2000 – 2009)
2.4       Theoretical Literature
2.4.1    Casualty between the capital market and Economic Growth
2.4.2    The Impact of Capital Market on Economic Growth and Development
2.5       Theoretical Framework
2.5.1    The Financial Repression Hypothesis
2.5.2    The Harrod - Domar Growth Model
2.6       Empirical Literature Review
2.6.1    Empirical Review on Other Countries
2.6.2    Empirical Review on Nigeria
2.7       Gap Identified in the Literature

3.1       Introduction
3.2       Method of Data Analysis
3.2.1    The Unit Root Tests
3.3       Models Specification
3.3.1    The Causality Model
3.3.2    Cointegration and Vector Error Correction (VECM) Model
3.5       Nature and Source of Data

4.1       Introduction
4.2       Stochastic Properties of the Data
4.3       Trend Analysis of the Series
4.3       Unit Root Tests
4.4       Granger Causality Tests
4.5       Cointegration Results
4.6       Vector Error Correction (VECM) Results

5.1       Summary of Findings
5.2       Conclusion
5.3       Policy Recommendations


The Nigerian financial system experienced series of reforms and amidst these reforms an important component of the sector, the capital market has demonstrated an impressive performance evidenced from its growth especially in the last decade. Coupled with this development, the Nigerian economy has also experienced growth which did not significantly translate into positive improvements in employment, and poverty reduction. This study examined the relationship between capital market development and economic growth in Nigeria. It tests the competing finance-growth nexus hypotheses using Granger causality tests in a Vector Auto regression framework over the period 1981-2012. The study also examined the impact of capital market development on economic growth in Nigeria and tested for the evidence of long run relationships. Annual data on some capital market development indicators and real growth domestic product were collected and used for the study. The empirical results from causality test at lags 7 show that value of transaction and turnover ratio each drives real GDP with no reverse or feedback effect. Thus, this supports the evidence of unidirectional causal link from these two indicators to real gross domestic product. In essence, the general causality results reveal some evidence that capital market development causes economic growth in Nigeria as shown by some of the capital market development used in this study. The co-integration results imply that there exists a significant long-run relationship between capital market and economic growth. There exist four significant co integrating vectors or four different linear combinations of the capital market indicators that can drift together roughly at the same time with the RGDP. The study recommends among others the need for availability of more investment instruments such as derivatives, convertibles, future, and swaps options in the Nigerian capital market in order to boost the value of transactions. Also, it is recommended that all the tiers of government should be encouraged to fund their realistic developmental programmes through the capital market. This will help in boosting the activities of the capital market, as well as the financial sector. Hence, it will redirect the resources that may be used in other spheres of the economy.



1.1              Background of the study

In every Country Nigeria inclusive, there is a financial system which is responsible for regulating the financial environment of the economy, determining the types and amounts of funds to be issued, cost of funds and the uses to which these funds are to be put. The role of financial intermediation to economic growth and development is being increasingly recognized, especially in developing economies (Sanusi, 2011). Financial intermediation involves the process in which financial market transfer funds from the surplus economic units to deficit ones. The financial market is made up of two majors markets which are institutional arrangements that facilitate the intermediation of funds in an economy, they are: the money market and the capital market. The basis of distinction between the money market and the capital market lies in the degree of liquidity of instruments bought and sold in each of the market (Osamwonyi, 2005).

Therefore, the money market is simply the market for short-term funds and securities including treasury bills, one-year treasury certificates, Central Bank notes, negotiable certificates, commercial papers, commercial and merchant bank savings and other funds of less than one year duration. The capital market on the other hand is the market for longer-term funds and securities whose tenor exceeds beyond one year. These include long-term loans, mortgage bonds, preference stocks, ordinary shares, Federal Government bonds and industrial loans and debentures. This market is the source from which companies and industries obtain capital for expansion and modernization and also from which government borrows on a long-term basis for development purposes.

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