Capital Market Predictive Power on the Development of the Nigerian Economy: An Impulse Response and Variance Decomposition Approach

Abstract

The study is an empirical investigation of the contributions of the Nigeria’s capital market to the development of Nigerian economy. Most researchers focused on capital market and growth nexus, where as we deviated by focusing on the role played by capital market in ensuring reduction of unemployment and poverty in Nigeria. Specifically, we investigated the contributions of market capitalization (MCAP), value of share traded (VST) and all share index (ASI) to unemployment rate (UNPR) and poverty (NPI) reductions in Nigeria within the period 1981 to 2017. The data series used were sourced from the annual statistical bulletin of the central bank of Nigeria (CBN) and Nigeria stock exchange (NSE). Preliminary analyses of stationarity and cointegration tests revealed that the series were non stationary at levels; and cointegrated respectively. The result of the impulse response functions (IRF) and variance decompositions from the two models considered revealed that the contributions of the capital market to poverty reduction in Nigeria is highly insignificant, while it contributes fairly to unemployment reductions in Nigeria within the study period. Conclusively, the research reveals that the Nigeria capital market is not contributing optimally to the development of Nigeria’s economy as this is evident on its abysmal contributions to poverty and unemployment reductions. In line with the findings of this work, we recommend that the Nigeria capital market should be repositioned in a way that it can optimally contribute to the reduction of unemployment and poverty in Nigeria. 

 

Keywords: Capital market, Sustainable Development, Variance Decomposition, impulse response function

Article Review Status: Published

Pages: 24-41 (Download PDF)

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