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This paper addresses the impact of capital market development on economic growth and development since the liberalization policy in 1986 to 2010 in Nigeria. It employs Ordinary Least Square (OLS) and Johansen CO-integration estimation techniques. Gross Domestic Product (GDP) was used as measure for economic growth while the capital market development are represented with Market Capitalization (MCAP), Total Value of Transaction (TVT), Total New Issues (TNI), All-Share Index (ALSI) and Total Listing on the NSE (TLT). The result of the study shows that capital market development has not impacted positively on Nigeria economic growth and development due to the relative small size of the market despite its development as a result of the liberalization policy. Thus, it recommends that policies that would encourage domestic as well as foreign investors to participate in the market should be formulated. The financial system in any economy plays significant role in stimulating economic growth and development. It channels funds efficiently to various economic agents that need them for productive uses. This function is very important for economic growth and development because it creates and makes link between the surplus and deficit units of an economy. The financial system provides this basically through the activities in the financial market. The capital market which is a subset of the financial market provides an avenue for the efficient channelling of long term funds (idle funds) to the users of funds for investment uses from the savers of fund. The other subset being money market, serves as a medium through which short term fund are channelled. In the capital market, the surplus unit of the economy (suppliers of funds) are majorly individuals and corporate bodies as government rarely supply funds to the market while the deficit units consist only of corporate bodies and government since conventionally, individuals cannot access the capital market for funds (Ewah, Esang and Bassey, 2009). It consists of two arms; the primary market which creates a medium for long-term fresh funds to be raised through the issuance of new financial securities, and, secondary market which provide opportunities for the sale and purchase of existing financial securities that have already been traded in the primary market, among investors thereby encouraging investment in financial securities and boosting economic growth. The institutional framework through which the capital market in Nigeria function include; the Securities and Exchange Commission (SEC), the Nigerian Stock Exchange (NSE), Stock brokers, Issuing houses and Investors. Ewah et al. (2009) noted that, the main objectives of establishing the Nigerian capital market is to mobilize savings from various economic units for economic growth and development, provide adequate liquidity to investors, widen the ownership base of assets as well as the creation of a buoyant private sector and provide alternative source of funds for government. Others are to encourage more efficient allocation of new investments through the price mechanism, encourage more efficient allocation of a given amount of tangible wealth through changes in the composition and ownership of wealth, create a built-in efficiency in the operations and allocation in the financial system to ensure optimal utilization of resources, and promote rapid capital formation. The corporate bodies and governments often require large sum of money to pursue their objectives. It is therefore, usually difficult for them to meet such funding requirements solely from internal sources, hence they often look up to the capital market. This is because the capital market is the ideal source as it provides them the opportunity to have access to the required fund from large number of people and institutions. Thus, the socio-economic function of the capital market is well established. It does not only encourage and mobilize savings but also efficiently allocates such savings to areas of need (Ekineh, 1996).

Impact of Capital Market Development on the Nigerian Economy: A Post-SAP Analysis