Evaluation of Effect of Interest Rate on Capital Market Growth in Nigeria (1985-2009)

Abstract

The market is an economic institution which encourages efficiency in capital accumulation and allocation. It makes it possible for citizens to buy securities of companies, participate in the running of the private sector of the economy and without this market, the Indigenization Decree of Nigeria would not have had any effect. Specifically, this study examines the effect of interest rate on capital market growth in Nigeria over the last decades (1985 - 2009) using analytical statistical technique with Ordinary Least Square (OLS) method. The results established that consumer price index (4.551453) is positively significant with capital market which increases the growth of the economy. The  R² (0.8268824) explains the goodness fit of model, the precision and reliability of the model. Interest rate reduces all share price index and globally, stock markets are regarded as financial institutions where funds can be raised in order to finance investments so as to achieve high economic growth and development. Based on this, it was recommended that, for capital market to take full advantage of the various opportunities and cope with challenges, interest rate must be properly put at check in order to enable capital market to function properly.

Keywords; Interest rate, capital market, economy growth, Ordinary Least Square (OLS) method, Nigeria