ABSTRACT

 The abstract presented a study that examined the response of the Capital Market to Public expenditure in Nigeria. The research aimed to investigate the relationship between the four major categories of public expenditure in Nigeria (Administration, Economic Services, Social and Community Services, and Transfer Payments) and the development of the capital market, as measured by the Market Capitalization index. Time series data spanning from 1999 to 2020, sourced from the Central Bank ofNigeria Statistical Bulletin, were utilized for the study. The stationarity of the variables was assessed using the Augmented Dickey-Fuller unit root test, while the existence of long-run and short-run equilibrium conditions was analyzed through the co-integration and Vector Error Correction Model (VECM). The empirical findings revealed a long-run equilibrium relationship between Public Expenditure and Capital market development in Nigeria during the period under study. Specifically, it was observed that public expenditure in Administration exhibited a significant and negative long-term relationship with Capital market growth in Nigeria. Conversely, Expenditure in Economic Services, Social and Community Services, and Public Transfer showed a significant but positive long-run relationship with stock market growth. In light of these findings, the study recommended an increase in government expenditure to stimulate Capital market growth in Nigeria and a reduction in borrowing to alleviate the burden of frequent debt servicing. Furthermore, it suggested reducing the importation ofbasic social amenities and equipment, instead focusing on funding local contractors and industries to execute major projects and thereby enhance investment in the Capital market, ultimately leading to economic growth. In conclusion, this study provided valuable insights into the relationship between public expenditure and the performance of the Capital Market in Nigeria. The findings have significant implications for policymakers, offering strategic directions to foster Capital market development and improve the overall economic landscape.