Financial Deepening of Market Capitalization and Economic Development in Nigeria

and liquidity needs. Better savings mobilization may increase the saving rate. The stock market also provides an avenue for growing companies to raise capital at lower cost. In addition, companies in countries with developed stock market are less dependent on bank financing, which can reduce the risk of a credit crunch. Economic development is generally agreed to indicate development in an economy, because it transforms a country from a five percent saver to a fifteen percent saver. Thus it is argued that for stock market and bank financing to contribute or impact on the economic development in Nigeria, it must operate efficiently. Most often, where the market operate efficiently, confidence will be generated in the minds of the public and investors will be willing to part with hard earned funds and invest them with the hope that in future they will recoup their investment.(Okoli, 2020). Levine (2017), argued that bank and stock markets provide financial services which are essential for the development of a country and is of the opinion that the services provided by bank and stock market may be complementary. Economic growth is a complex, long-run phenomenon, subjected to constraints like: excessive rise of population, limited resources, inadequate infrastructure, inefficient utilization of resources, excessive governmental intervention, institutional and cultural models that make the increase difficult, etc (Hardy, 2021). Economic growth is obtained by an efficient use of the available resources and by increasing the capacity of production of a country. It facilitates the redistribution of incomes between population and society. The cumulative effects, the small differences of the increase rates, become big for periods of one decade or more. It is easier to redistribute the income in a dynamic, growing society, than in astatic one. There are situations when economic growth is confounded with economic fluctuations. The application of expansionist monetary and tax policies could lead to the elimination of recessionary gaps and to increasing the GDP beyond its potential level. Economic growth supposes the modification of the potential output, due to the modification of the offer of factors (labour and capital) or of the increase of the productivity of factors (output per input unit). When the rate of economic growth is big, the production of goods and services rises and, consequently, unemployment rate decreases, the number of job opportunities rises, as well as the population’s standard of life (Quinoz, 2020). Empirical Review Shittu (2022) examined the impact of financial intermediation on economic growth in Nigeria with time series data from 1970 to 2020. Employing co integration test and error correction model, he finds that financial intermediation has a significant impact on economic growth in Nigeria. Sulaiman and Azzez (2022) critically explored the effect of financial liberalization on the economic growth in developing nations with its assessment focusing on Nigeria with annual time series data from 1987-2019. The study employs cointegration and error correction model (ECM) by making Gross Domestic Product as a function of lending rate, exchange rate, inflation rate, financial deepening (M2/GDP) and degree of openness as its financial liberalization indices. Co-integration result confirms the existence of long run equilibrium relationship while the ECM results show a very high R2 in both the over-parameterized model (95%) and parsimonious model (91%). The study therefore concludes that financial liberalization has a growth-stimulating effect on Nigeria. Jalil, Wahid and Shahbaz (2020) investigated the relationship between development of the financial sector and economic growth. They used time series data for the 1985 -2017 period and set the estimation strategy under the ARDL model. The variables used for financial deepening were liquid liabilities to nominal GDP (M2/GDP), credit to private sector to nominal GDP, Commercial/Central Bank asset ratio. The researchers found a positive monotonic relationship between financial development and economic growth for South Africa, Trade Openness and per capita real capital were found as the other important determinants of economic growth. Nzotta and Okereke (2019) carried out an empirical study which observed financial deepening and economic development in Nigeria from the year 1986 to year 2017. Their work made use of secondary data obtained for a period of 32 years. They specified nine explanatory variables for their study based on hypothetical substructures. In their work, they sought to establish a relationship between the variables they specified and financial deepening index. They used two stages least square analytical framework in their analysis and also trend analysis was applied in the study. At the end of their study, they observed that financial deepening index is low in Nigeria over the years. They discovered also that the nine explanatory variables, as a whole were useful and had a statistical relationship with financial deepening. They also found out that four of the variables specified in their study; lending rates, financial savings ratio, cheques/GDP ratio and the deposit money banks/GDP ratio had a significant relationship with financial deepening. They concluded that the financial system has not sustained an effective financial intermediation, especially credit allocation and a high level of monetization of the economy which led them to recommend that the regulatory structure should be reorganised to guarantee good risk management, corporate governance and lessening systemic crisis in the system. Adu, Marbuah and Mensah (2019) investigated the long run effect, financial deepening has on the Ghana economy, using a time series data for 14 years period 1998 to 2018. Their study used private sector credit ratio to GDP, money supply ratio to GDP, total domestic credit ratio, total bank liabilities ratio and a set of control variables such as trade openness, inflation rate and real gross government expenditure. The study, although useful in the use of more than one measure of financial deepening and the use of control variables, the number of observation of their data points is insufficient to obtain a statistically significant result for the individual variables. The researcher failed to apprehend the fact that the time span of the study draws into question the validity of the finding, as they could be spurious. Econometric theories suggest a minimum 15 years’ time series data as a measure of avoiding spurious result in a study. Ndebbio (2019) studied financial deepening and economic growth: evidence from selected sub-Saharan African countries using the ratio of money supply to GDP and growth rate per capital real money balances as indicators of financial deepening. The study found positive and statistically significant impact on growth rate in per capital real money balances on real per capital GDP growth. Agu and Chukwu (2018) studied financial deepening and economic growth in Nigeria from the period of 1970 to 2015. The study used only bank based financial deepening proxies. Financial deepening means an increase in asset and providing level of financial services to the economy. The total amount of financial assets will constitute an optimal measure of financial deepening. Bashiru (2018) studied the financial deepening and economic growth in Ghana using quarterly data from 1983 -2018. The Johansen co integration approach, vector error correction, vector autoregressive and Granger causality approaches were employed. Financial deepening was