ABSTRACT
ThisResearchstudy was carried out to find the link between financial sector liberalization and capital market Development. As part of the Structural Adjustment Programme (SAP) of 1986, the Nigerian Government initiated a large scale restructuring
Of the financial sector and the liberalization of the regulations concerning financial institutions and markets. This was justified on the basis of existing market failures which
arose from externalities and lack of information
Using the econometric techniques, we found, that financial liberalization increased the real deposit ratio and also will lead to a substitution into financial asset resulting in a greater supply credit to finance real investment for capital market development and economic growth. Consequently, we recommend that for macroeconomic stability, efficiency and proper development of the financial system, direct control should be discouraged while indirect control should be encouraged through the market mechanism.