Examining the Impact of Corporate Bond Market Development on Nigeria's Economic Growth

Abstract

Researchers have widely explored the finance–growth nexus, but they have paid limited attention to the role of corporate bond markets in bank-dominated emerging economies. To address this gap, this study examined the relationship between corporate bond market development and economic growth in Nigeria over the period 1981–2024. The study employed an Autoregressive Distributed Lag (ARDL) model to analyse both the short-run and long-run dynamics. Key indicators of corporate bond market development, including market capitalisation, traded value, bond yields, and the number of deals, were incorporated, with inflation as a control variable. The empirical findings revealed that, in the short run, most corporate bond market indicators exerted insignificant effects on economic growth, except bond yields, which showed a negative, statistically significant relationship with economic growth. In the long run, none of the corporate bond variables significantly influenced economic growth, although a stable long-run relationship existed among the variables. Inflation consistently exerted a negative and significant effect, underscoring the importance of macroeconomic stability for fostering economic performance. The results suggested that Nigeria's corporate bond market remains shallow, illiquid, and weakly integrated into the financial system. The dominance of government securities and structural inefficiencies further constrained its effectiveness as a financing channel. Consequently, the study recommended strengthening regulatory and institutional frameworks to enhance market depth, reducing excessive government borrowing to limit crowding-out effects, and promoting macroeconomic stability to lower borrowing costs.