Nexus between Savings Mobilization, Capital Market Development and Economic Growth in Nigeria

Abstract

This study examines the relationship between domestic savings, capital market development, and economic growth in Nigeria over the period 1990 to 2023 using the quantile regression technique. Unlike conventional mean based estimation methods, the quantile regression framework allows the assessment of the effects of savings and capital market indicators across different points of the conditional distribution of economic growth, specifically the lower, median, and upper quantiles. This approach provides additional insight into how the influence of financial variables varies under different growth conditions. The empirical results indicate clear differences across growth regimes. The gross domestic savings rate exhibits a positive coefficient across all quantiles of economic growth but remains statistically insignificant, suggesting that while domestic savings are potentially supportive of growth, their impact has been weak and inconsistent over the study period. Total savings also show a negative but statistically insignificant relationship with economic growth across the distribution, pointing to possible inefficiencies in the allocation of accumulated savings to productive investment. Capital market performance and size indicators, namely the All Share Index and equity market capitalisation, do not display statistically significant effects at any quantile, indicating limited transmission from market valuation and market size to real sector growth during the period under review. In contrast, financial deepening measured by the number of listed equities is positively associated with economic growth across all quantiles and is statistically significant at the upper quantile. This finding highlights the relevance of capital market breadth and market participation, particularly during periods of relatively strong economic performance. The exchange rate does not exert a significant influence at the lower and median quantiles but becomes marginally significant at the upper quantile, suggesting that exchange rate movements may matter primarily during expansionary growth phases. Overall, the findings indicate that the relationship between savings, capital market development, and economic growth in Nigeria is nonlinear and varies across growth conditions. While savings mobilisation and capital market size have not exerted strong independent growth effects, market inclusiveness, as reflected in the number of listed firms, appears to be a more relevant channel through which the capital market supports economic growth. The study underscores the need for policies that strengthen market participation, improve intermediation efficiency, and enhance the linkage between savings mobilisation and productive investment.