A capital market is any medium of bringing buyers and sellers together to exchange financial instruments like bonds, equities, etc. Participants, such as individuals and institutions, carry out the purchasing and selling. Capital markets assist in directing people’s excess cash towards institutions so they can use it for investments in profitable ventures (Viral, 2019) [11] . Typically, long-term securities make up the majority of this market’s trades. There are primary markets and secondary markets in the capital market. Primary markets deal with the trading of newly issued stocks and other securities, whereas secondary markets deal with the trading of already-existing or previously-issued securities. The stock market and bond market are two examples of significant divisions based on the type of security traded in the capital market (Bennett Coleman, 2017) [12] .

An increase in the output of products and services over a given time period is referred to as economic growth. The measurement must account for inflationary impacts in order to be precise (Michael and Rufaro, 2020) [13] . A second definition of economic growth is a rise in an economy’s ability to create products and services over time. It can be measured in real terms, which are inflated and adjusted, or in nominal terms. Although alternative metrics are occasionally employed, Gross National Product (GNP) or Gross Domestic Product (GDP) are traditionally used to measure overall economic growth (Abdullah, et al. 2022) [14] . Economic growth is just an increase in overall productivity. Gains in overall productivity frequently but not always correlate with higher average marginal productivity. This implies that the typical worker in a particular economy becomes, on average, more productive. It is also possible to achieve total economic growth without an increase in average marginal productivity by increasing immigration or birth rates (Michael and Rufaro, 2020) [13] .

Businesses profit more as a result of economic expansion. Stock prices consequently increase. That provides businesses with the funds they need to expand and hire more workers. Income increases when more jobs are created. The purchasing power of consumers has increased. Higher economic growth is a result of purchases. Therefore, all nations desire favourable economic growth. As a result, economic growth is the economic indicator that receives the greatest attention (Arindrajit, 2019) [15] .

The most accurate indicator of economic growth is gross domestic product. This is due to the fact that it accounts for the entire nation’s economic production. It comprises all products and services that companies in the nation manufacture for export. It makes no difference whether they are sold domestically or abroad. GDP is a measurement of output. It excludes the components created to create a product. Because they are made domestically, exports are included. Economic growth is adjusted for imports. Most nations assess economic expansion every three months. Real GDP is the most reliable indicator of growth. It eliminates the consequences of inflation. Real GDP is used to calculate the GDP growth rate (Karen and Louise, 2018) [16] .

There are only a few methods for creating economic growth. The first is the finding of fresh or improved economic resources. For instance, before gasoline’s ability to produce energy was discovered, the economic worth of petroleum was relatively low. After this discovery, gasoline was transformed into a better and more useful commercial resource (Abdullah, et al. 2022) [14] .

Confidence in economic growth eventually wanes. The economy shrinks when people sell more than they buy. When that stage of the business cycle persists, it turns into a recession. A recession that lasts ten years is considered an economic depression. The only time this occurred was in 1929, during the Great Depression (Kimberly Amadeo, 2018) [17] .

In the literature, a variety of theories have been proposed to explain how governments and business organizations make investments. Marginal efficiency of capital is one of them, along with the Accelerator theory of investments, the Tobin Q theory of investments, and the Theory of Investments by Accelerator. This study explains these theories separately.

The Marginal Efficiency of the Capital Hypothesis: A Keynesian concept known as the marginal efficiency of capital hypothesis establishes the rate of discount that compares the present value of netting expected revenue from a capital investment to the cost of the investment. The Keynesian theory of investments, which is heavily based on this idea, says that the level of investment is determined by the marginal efficiency of capital in relation to the rate of interest. Investment will be encouraged if the marginal efficiency rate exceeds the interest rate; if not, it will be discouraged. This idea is based on the common mathematical procedure of calculating the present value of a given series of returns discounted at a predetermined discount rate (Encyclopedia of Banking and Finance, 2016) [18] .

Investments According to the Accelerator Theory: According to the investment accelerator theory, firms’ investment levels rise along with rising demand or income in an economy. A further prediction of the accelerator theory is that firms have two options for satisfying demand when demand levels lead to an excess of supply. Either demand or investors will need to increase investment to keep up with prices in order to reduce prices. According to the theory, the majority of businesses decide to boost production, which boosts their profits. The theory also explains how this growth draws in more investors, which in turn accelerates growth.

The Tobin Q Theory of Investment: The neo-classical theory of investing as well as the accelerator theory both has two fundamental flaws. According to both theories, the adjustment of the capital stock to the desired level is, by implication, instantaneous and complete in each period. To address this, the optimization problem should be given an adjustment cost function (Treadway, 1969) [19] . The Neoclassical and Accelerator theories don’t take expectations into account, which is the second issue. Brainard and Tobin (1968) [20] proposed solutions to these problems. The Tobin Q-Theory of Investment was proposed by Tobin in 1969, and it states that investments are made until the market value of assets equals the cost of replacing those assets.

According to the investment accelerator hypothesis, firms’ investment levels rise along with rising demand or revenue in an economy. A further prediction of the accelerator theory is that enterprises have two options for satisfying demand when demand levels lead to an excess of demand. Either demand or investors will need to boost investment to keep up with pricing in order to reduce prices. According to this notion, the majority of businesses decide to boost production, which boosts their profitability. The idea also explains how this growth draws in more investors, which in turn increases growth.

A unit root test was performed on the data as a preliminary step in examining the effect of Nigeria’s capital market on economic growth. For this, a unit root test based on Augmented Dickey Fuller (ADF) test was used. The test results are summarized in Table 1.

Real gross domestic product (RGDP) and Capital Market Development (MCN) are stationary at first difference, according to the unit root result reported in the table above, whereas interest rate is stationary at level. There is no short-term correlation between time series data if a time series data set lacks stationarity.

If two variables have an equilibrium or long-run relationship, they are said to be cointegrated in the context of economics (Gujarati, 2004: p. 822). A unit root test was run on the residuals after applying the Augmented Dickey Fuller (ADF) test for this. Table 2 contains a presentation of the test results.

Source: Researcher’s computation 2023.

Source: Researcher’s computation 2023.

The value of the ADF statistics (−3.584723) exceeds the 5% level of significance (−2.548216) in absolute terms, according to the cointegration result shown above. Based on the decision rule, this shows that the null hypotheses were rejected at the 5% level of significance. As a result, it can be assumed that the variables of interest are part of a cointegrating equation or vector. It follows that the variables have a long-term relationship. Hence, the stochastic tendency in the series is cancelled out by the linear combination of these variables. By doing so, erroneous (i.e., meaningless) regression findings will not be produced.

The short run disparity’s magnitude is −0.7589, or 75.88, according to Table 3, which also indicates how strong the short run dynamics are. This illustrates an after-shock adjustment to equilibrium that occurs at a comparatively rapid rate.

A priori expectations are used in this subsection to evaluate the regression findings. Each variable coefficient’s sign and size are assessed in comparison to what is predicted theoretically. The coefficients of all the variables’ signs do not quite match what was anticipated in advance. Real gross domestic product (RGDP) is positively correlated with capital stock market and interest rates.

Source: Researcher’s Computation 2023.

Source: Researcher’s Computation 2023.

CWES―Conform with Expected Sign.

The constant term is predicted to be 10.12818, meaning that the model goes through 10.12818. The real gross domestic product would be 10.12818, according to mathematics, if the independent variables were all zero.

The estimated coefficient for the Capital Market Development (MCN) is 0.18863, which means that, if other variables affecting real gross domestic product are held constant, an increase in the Capital Market Development will typically result in an increase in real gross domestic product of 0.18863 on average. Likewise, the projected coefficient of interest rate (IR) is −0.00093, which means that, when all other factors that affect real gross domestic product are held constant, an increase in the interest rate will result in a −0.00093 decline in real GDP.

This section applies the R², t-test, and f-test to assess the estimated parameters’ statistical reliability. The following tests are run:

1) R²―Result and Interpretation

The regression result’s R² is given as 0.931028, the coefficient of determination R², infers those changes in interest rates and Capital Market Development account for 93.10% of the variation in real gross domestic product.

2) t-Test Result and Interpretation

According to the distribution table, t_{0.025, 18} = 2.157

Table 6 displays the outcome of the t-test for significance:

The t-outcome test is shown below, and it is evaluated using both the critical value of 2.157 and the derived t-statistics for each variable.

H₁ is accepted instead of H₀, which is noteworthy (accept H₀).

According to the t-test outcome above, the alternative hypothesis holds true for MCN: t* > ta/2. So, the overall capital market development is statistically significant, and the capital market development has a considerable impact on real GDP.

Because t^* < t_a/2 for IR allows the null hypothesis to be accepted, the interest rate is not statistically significant, so it has no real economic importance.

3) Result and Interpretation of F-Test of Significance

V₁ = 3 − 1 = 2, V₂ = 18 − 3 = 15, d.f. = (2, 16) at the 5% level of significance, f0.05 = 3.64, and f^* = 244.0480 are the results (Table 7).

Since f* = 244.0480 > f = 0.05, we accept the null hypothesis and come to the conclusion that MCN and IR have a joint effect on real gross domestic product.

The autocorrelation, normality, and Granger causality tests are three econometric tests that are utilized in this subsection to assess the outcome of the research model.

1) Result and Interpretation of Autocorrelation Test

The zone with no autocorrelation (positive or negative), according to Durbin-Watson statistics, is shown as follows:

du = 1.73, d* = 0.197669 (4-du) = 4 − 1.73 = 2.27, du = d^* = (4-du) = 4 − 1.73 = 2.27, du = d* = (4-du) = 4 − 1.73 = 2.73

The area is transformed into: 1.73 > 0.197669 < 2.27.

The model has an autocorrelation problem because the calculated Durbin-Watson statistics do not fall within the zero autocorrelation zones (Table 8).

2) Granger Causality Test: Result and Interpretation

The results of the Granger Causality Test (Table 9) indicate that there is a

Source: Researcher’s Computation 2023.

Source: Researcher’s Computation 2023.

Source: Researcher’s Computation 2023.

Source: Researcher’s computation 2023.

unidirectional causal relationship between Capital Market Development and real gross domestic product, as well as no causal relationship between the real gross domestic product interest rate in Nigeria and Capital Market Development and interest rate.

Table 3 long-run error correction estimates show that there is a long-run direct relationship between real GDP and capital market development, with a slope coefficient of 0.163926. The association is also seen as statistically significant, with a t-value of 1.316109 is below the critical t value of 2.05 at 5% significant level. This shows that over the long term, a 1% change in capital market development will cause a 16% change in the real GDP. As a result, the null hypothesis that there is no significant relationship between the capital market development and the economic growth in Nigeria is rejected and the alternative hypothesis that there is significant relationship between the capital market development and the economic growth in Nigeria accepted.

According to the t-test results, the alternative hypothesis that the impact of capital market development on the economic growth in Nigeria is significant is accepted, but the null hypothesis that the impact of capital market development on the economic growth in Nigeria is not significant is rejected.

The results of the Granger causality test show a unidirectional causal relationship between capital market development and real gross domestic product, the null hypothesis of no causal significant relationship between the capital market development and the economic growth in Nigeria is accepted, while the alternative hypothesis of causal significant relationship between the capital market development and the economic growth in Nigeria is rejected.