This study further investigates the impact of capital market activities on economic growth in Nigeria using vector autoregressive (VAR) methodology. Capital market as a mechanism for economic development aids to provide alternative long term finance in the face of high cost of fund. While this crucial role has been over-emphasized by different scholars, but no attempt have been made to embark on a rigorous analysis, particularly, to demonstrate the feedback effect among variables included in a model explaining the relationship between capital market activities and economic growth. In order to address this problem, the study adopts VAR analysis. The investigation reveals that increase in capital market activities contributed significantly to economic growth. Also, the findings show that there is a long-run relationship between economic growth and capital market activities. The model proved to possess strong predictive ability using the values of mean absolute error (MAE) and root mean squares error (RMSE). The paper concluded that, economic growth could be enhanced by focusing on the salient capital market variables with appropriate policies and efficient infrastructural development.
Keywords: Capital market, Co-integration and VAR, Unit roots, economic growth
