The Impact of Capital Market on Manufacturing Output: Evidence of Causal Relationship

Abstract

The study investigated the Impact of Capital Market Indicators on
Manufacturing Output in Nigeria (1990-2020). Precisely the study sought to
determine the direction of causality between capital market indicators and
manufacturing output, to achieve these objective data were collected mainly
from the Central Bank of Nigeria (CBN) Statistical Bulletin, Central Bank of
Nigeria (CBN) Annual Report and Financial Statement, Nigerian Stock
Exchange (NSE) Annual Report and Securities and Exchange Commission
(SEC) Statistical Bulletin. Variables such as; Market Capitalization of
Equities, All Share Index of Equities, Foreign Direct Investment in Equities
and Value of New Issue of Equities were used as independent variables and
Manufacturing Output as dependent variable while Inflation and Exchange
Rate served as control variables. For empirical analysis the study adopted
Augmented Dickey Fuller ADF and Philips-Perron test to determine the
characteristics of the variables, which Granger Causality test was employed
to examine the causality. The findings of the Granger causality extracted from
VAR reveals the existence of unidirectional causality between capital market
indicators and manufacturing output. Therefore, the study recommends that
government should attract investable funds in the economy through financial
deepening and inclusion and also incentivize financing of manufacturing
sector.