Abstract

The study examined the relationship between capital market development and economic growth in Nigeria, using data covering the period 2000 to 2023. The objective of this study is to empirically evaluate the impact of capital market development on economic growth in Nigeria, using key market indicators – Market Capitalization (MCAP), Stock Market Total Value Traded (SMV), the All-Share Index (ASI) and Gross Fixed Capital Formation (GFCF) to capture capital market development and Real Gross Domestic Product (RGDP) as proxies of economic growth. Adopting an ex-post facto research design, the study utilized annual time series data sourced from the Central Bank of Nigeria (CBN) and the Nigerian Exchange Group (NGX). The analytical framework employed the Autoregressive Distributed Lag (ARDL) bounds testing approach and Vector Error Correction Model (VECM) diagnostics to account for mixed integration orders (I(0) and I(1)) and long-run equilibrium dynamics. Empirical results revealed a multifaceted relationship: Market Capitalization exerts a statistically significant positive long run effect on Real GDP, with a 1% increase associated with a 0.5469% rise in economic output. Conversely, Gross Fixed Capital Formation, the All-Share Index, and Stock Market Total Value Traded all demonstrate significant negative long run impacts on Real GDP. These counterintuitive findings suggest that price instability, speculative bubbles, and suboptimal public expenditure crowd out private sector productivity and undermine the market's role as a driver of inclusive growth.