Stock Market Development, Financial Deepening, and Industrial Growth in Nigeria

Abstract

This study examines the roles of the stock market and financial deepening in Nigeria's industrial development, with a particular focus on their relationships with Industrial Output, Stock Market Capitalisation, and Credit to the Private Sector. Data covering 43 years (1981–2023) on annual time series used for the study were obtained from the World Bank Development Indicators (2023) and the Central Bank of Nigeria's Statistical Bulletin. The control variables adopted in the study were government expenditure, foreign direct investment, inflation and interest rate. The study used the Fully Modified Ordinary Least Squares (FMOLS) estimator to examine the long-run relationship among the variables. Empirical findings indicate that while Market Capitalisation has a negative and significant effect on industrial output, the effect of financial deepening was negative and not significant. Also, the interactive effect of stock market capitalisation and financial deepening showed a positive, though non-significant, relationship with industrial output. Overall, the industrial sector in Nigeria is not receiving the necessary support from the Nigerian capital and financial markets to drive the required expansion in activities. The study recommends, among other measures, strengthening the performance of the stock market, improving the level of financial deepening in the country and ensuring the availability of low-interest, longer-tenured funds for industrial investments.