The study is focused on finding the effect of financial inclusion on the growth of the capital market and economic growth for the period 1986 to 2016.This was to ascertain if the stylize fact that financial inclusion enhances economic growth is applicable to Nigeria, and whether the capital market is a proximate cause of this growth process. Using a VAR model, the paper employed Bayer-Hanck cointegration procedure to establish the presence of cointegration and identify the cointegrating equations. VECM was employed to show the short and long run effects among the variables as well as estimate the error correction term; while impulse response function and forecast error variance decomposition were also utilized to analyse how shocks reverberates through the system.Toda-Yamamoto causality test was used to determine the direction of causality among the variables. Contrary to expectations the result revealed a reverse causality from economic growth to capital market and financial inclusion. It depicts a unidirectional causality flowing from economic growth to capital market; and bidirectional causality between capital market and financial inclusion. The study recommends that financial institutions and the government should harness their resources to facilitate the flow of credit facilities to the real sectors. It further recommends the introduction of diverse financial instruments on the capital market to satisfy the financial needs of corporate and individual investors. Finally, we advised that public awareness on capital market activities should be enhanced.
Keywords: Financial Inclusion. Capital market. Nigerian economy. Bayer-Hanck Cointegration.