CAPITAL MARKET LIQUIDITY AND NIGERIA ECONOMIC GROWTH

Abstract

This study investigated the impact of capital market liquidity on economic growth in Nigeria. Real Gross Domestic Product Annual Growth rate (RGDPG) was used, to achieve this objective, as a proxy for economic growth and served as the dependent variable. The independent variables, namely stock market capitalization (MCR), Value Traded Ratio (VTR), and Turnover Ratio (TOR), were used as proxies for capital market liquidity. Relevant data spanning from 1993 to 2021 were sourced from the Central Bank of Nigeria (CBN) Statistical Bulletin and World Bank Development Indicators for the period under review. Analytical tools employed for this study included descriptive statistics, Augmented Dickey-Fuller (ADF) Unit Root test, Johansen Co-integration, Granger causality, and Ordinary Least Squares (OLS) regression. The results revealed that the F-statistic of the regression output stood at 1.46, indicating that the regression plane was not statistically significant. The R2 value of 0.148791 suggested that about 14.88% of the total variation was accounted for by the independent variables. All the variables were stationary at their first difference, and a long-run relationship was established between capital market liquidity and economic growth in Nigeria, confirming the co-integration among the variables. The P-values of 0.23, 0.22, and 0.86 for MCR, VTR, and TOR, respectively, were greater than the chosen level of significance (0.05). Additionally, the overall level of significance, Prob. (F-Statistic) 0.25, was greater than the 0.05 level of significance, indicating that all the independent variables could not jointly influence the dependent variable for the period under review. Therefore the study concludes that although capital market liquidity was deemed insignificant, it had a long-run impact on economic growth in Nigeria. The study recommends that, to bring about a significant positive impact of stock market liquidity on economic growth in Nigeria, the government should implement an efficient system geared towards a high level of trading activities that will foster a vibrant and free flow of information. This study contributes to the body of knowledge by modifying existing models and extending the time scope of existing literature to 2021.