IMPACT OF CAPITAL MARKET ACTIVITIES ON THE NIGERIAN ECONOMY
ABSTRACT
The study investigates the empirical relationship between the capital market activities and economic growth in Nigeria. Using data covering the period 1980 to 2009, both statistical and econometric tools were employed to estimate the empirical relationships. The findings in the analysis in the study show that total listed stocks have a very strong positive impact on the Nigerian economy. This implies that as the capital market widens, it exerts significant positive effect on the economy; value of traded stocks also has a very high positive impact on the Nigerian economy, government stocks have very strong positive impact on economic growth in Nigeria and that new issues of shares or market deepening does not significantly affect economic growth in Nigeria.
The study recommends that policy makers should look into the openness of the economy so that the net foreign resource inflows (principally for FDI) may supplement domestic saving and help the country to reach higher rates of investment and growth. Also, the government should emphasize on the elimination of any impediments to the growth and development of the Stock Exchange including any regulatory barriers that may act as disincentives to investment. The capital markets authority should check and avert any sharp practices by market operators (particularly the speculators) in order to safeguard the interests of shareholders.
  TABLE OF CONTENTS
CHAPTER ONE            
1.1    Background of the Study                            
1.2    Statement of the Research Problem                    
1.3    Objective of the Study                            
1.4    Hypotheses of the Study                            
1.5    Significance of the Study                            
1.6     Scope of the Study                            
1.7     Limitation of the Study                        
CHAPTER TWO: LITERATURE REVIEW
2.1    Conceptual Issues, Definition and Function Of Capital Market            
2.2.1    The Operators of The Nigeria Capital Market                 
2.3     The Role of the Capital Market In Economic Development         
2.4    The Functions of the Nigeria Stock Exchange (NSE)             
2.5     Factors Favourably Influencing the Growth of the Nigeria Capital Market        
CHAPTER THREE: METHOD OF THE STUDY
3.1    Introduction                                    
3.2     Theoretical Framework                        
3.3     Model Specification                                
3.4     Testing for the Causality                            
3.5    Sources of Data                                    
CHAPTER FOUR: DATA PROCEDURE AND ANALYSIS
4.1     Introduction                                
4.2     Correlation Analysis                            
4.3     Regression Analysis                            
4.4     Granger Causality Analysis                    
CHAPTER FIVE: SUMMARY, RECOMMENDATIONS AND CONCLUSON
5.1     Summary of Findings                                
5.2     Policy Recommendations                            
5.3     Conclusion                                    
Appendix                                
LIST OF TABLES
Table 4:1    The Pairwise Correlation Matrix                 
Table 4:2    Economic Growth and Capital Market Effects         
Table 4.3    Pairwise Granger Causality Tests                     
CHAPTER ONE
INTRODUCTION
1.2    BACKGROUND OF THE STUDY
The capital market plays an important role in the economic growth and development of the Nigerian economy. It is essentially the source of long term finance (equity or debt) for funding development projects. The capital market plays a crucial financial intermediation role in that it brings together those with surplus investible resources and resources deficit unit, in order to raise long term finance from the capital market must of necessity issue either equity and or debt instrument to the potential investors with surplus investible funds. So the capital market is critical for the mobilization of savings and other financial resources needed for domestic public-private investment. The capital market is a market for the mobilization and utilization of long term fund for development.
         The capital market is the financial market where medium fund, long term fund are poled and traded by individual and government with the use of financial debt instrument (securities) which are less liquid, less market and riskier because of their long term maturity nature and thus attract high interest rates. Further more the capital market is a complex institutions and mechanism through which intermediate funds and long term fund are poled and make available to businesses, government, individual and instruments (Gaumants and Dougau, 1975) For any economy to achieve sustainable growth and development there must be an efficient aid with structured capital market that can efficiently mobilized savings and capital and channel some appropriately to the various sector of the economy for development and growth. It is therefore not possible to achieve the desire economic growth objective of government without appropriate capital market with efficient and effective tools aimed at highly up a well planned growth and development in the economy and this actualize government fiscal, budgetary and development target. The federal government and even some state government always have the need pool resources together to finance /infrastructure/ development project in the area of and, health population. As population surges, the need for more social amenities become imperative and so is long-term fund. Unfortunately, inspite of the critical role the capital market play in economic growth and development, the Nigerian capital market is still largely underdeveloped (inadequate financial system) and so for this reason the capital market has not really contributed as it should to the growth and development with the ongoing reforms and deregulation in the financial system. We look forward to seeing shortly the emergence of a more robust capital market, offering arrays of financial instruments that will meet the need the diverse investing public.
From the foregoing therefore, a set of policy strategies should be designed for the robust and efficient market which will be an important role in financial intermediation and mobilization of resources critical to the sustainer of growth in the economy.   
1.2    STATEMENT OF THE RESEARCH PROBLEM
    The world and Nigeria in particular is just recovering from the worst financial and economic crisis since the Great Depression. While financial variables, such as exchange rates, have stabilized in East Asia, unemployment remains far higher than before the crisis and real wages far lower in Nigeria (stiglitz, 2000). The establishment of stock markets in Africa is expected to boost savings and increase the quantity and quality of investment. More generally, stock markets are seen as enhancing the operations of the domestic financial system in general and the capital market in particular (Kenny and Moss, 1998). Critics, however argue that the stock market might not perform efficiently in developing countries and that it may not be feasible for all African markets to promote stock markets given the huge costs and poor financial structures (Singh, 1999).  
    In the literature, there are several arguments for and against the ability of the capital markets to promote economic growth and development of a nation.  For example, Singh (1997), Levine and Zervos (1998) argued in principle that the stock market accelerate economic growth by providing a boost to domestic savings and increasing the quantity and quality of investment. The stock market is expected to encourage savings by providing individuals with an additional financial instrument that may better meet their risks preferences and liquidity needs. This view was also supported by various empirical studies, such as Levine and Zervos (1993), Atje and Jovanovic (1993), Wachtel (2000), Beck and Levine (2003), Levine and Zervos (1995) and the argument by Demirguc-Kunt (1994) that stock markets can give a big boost to economic growth and development.
    Conversely, critics or anti-proponents of the stock market argued that, stock market prices do not accurately reflect the underlying fundamentals when speculative bubbles emerge in the market (Binswanger, 1999). In such situations, prices on the stock market are not simply determined by discounting the expected future cash flows, which according to the efficient market hypothesis should reflects all currently available information about fundamentals. Under this condition, the stock market develops its own speculative dynamics, which may be guided by irrational behaviour. This irrationality is expected to adversely affect the real sector of the economy as it is in danger of becoming the by-product of a casino. Others in this line of argument include (Bhide, 1994), Singh, (1997), Binswanger (1999), Singh (1971). Furthermore, Yartey and Adjasi (2007) believed that these problems are further magnified in developing countries especially sub-Saharan African economies with their weaker regulatory institutions and greater macroeconomic volatility. The higher degree of price volatility on the stock markets in developing countries reduces the efficiency of the price signals in allocating investment resources. These serious limitations of the stock market have led many analysts to question the importance of the system in promoting economic growth in African countries.
    Now, in view of the wide range of conflicting empirical studies on how capital markets activities in developing countries affect the rate of aggregate growth, one cannot draw conclusions from them with any minimal acceptable level of confidence. More also, given the continuous unstable development of the Nigerian stock market and coupled with the impact of the recent global financial crisis, there is a growing interest in examining its impact on the rate of economic growth. The numerous literature on capital market and economic growth in Nigeria has not received the attention it deserves. Hence, the study seeks to empirically determine the impact of capital market activities on economic growth in Nigeria over time, and to see if there is any time-series support for the capital market-led growth hypothesis in the Nigerian context.     More specifically therefore, the study seeks to provide answers to the following research questions;
(i)    does market capitalization has any impact on the growth of the Nigerian economy?
(ii)    does total listed companies have any impact on the growth of the Nigerian     economy?
(iii)    does value of traded stocks affect economic growth in Nigeria?
(iv)    does total new issues affect the growth of the Nigerian economy?
(v)    does total money supply impact on the growth of the Nigerian economy?
(vi)    does government stocks traded in the capital market affect  economic growth in Nigeria?
1.3    OBJECTIVE OF THE STUDY    
    The study seeks to determine;
(i)    the impact of the impact of capital market activities on economic  growth in Nigeria.
     (ii)         Whether market capitalization, total listed companies, value of traded stocks, total            new issues, total money supply and government stocks traded in the capital market have any significant impact on the growth of the Nigerian economy.
1.4    HYPOTHESES OF THE STUDY    
    The followings are the Hypotheses of this study;
(i)     Market capitalization has a strong impact on the growth of the Nigerian economy
(ii)      total listed companies affect economic growth in Nigeria
(iii)      value of traded stocks influence the growth of the Nigerian economy
(iv)       total new issues positively affect economic growth in Nigeria
(v)       total money supply has a strong impact on the Nigerian economy
(vi)       government stocks positively influence economic growth in Nigeria
1.5    SIGNIFICANCE OF THE STUDY
    As indicated in the statement of problem, the study will definitely give an insight into the relevance of stock market activities on economic growth and development of any Nation across the globe.
    The study will also be relevant to potential foreign investors who would want to come into the country to invest in the capital market.
    Furthermore, the study will be very relevant to the Nigerian government, corporate bodies and policy makers, as it will provide them useful information and guidelines to formulating appropriate policies and programmes affecting capital market and economic growth in Nigeria.
    Again, Finance students and other related disciplines will also benefit immensely, as it will constitute viable data source that will enable them conduct further studies.
    Finally, the study will also be very useful to both the academia and researchers alike, who may want to conduct further studies on the subject matter.
1.6     SCOPE OF THE STUDY
The study which focuses on capital market and economic growth in Nigeria, covers a period of thirty- one years (1981 to 2011), with annual data from the Nigerian all share index for the period under investigation.
1.7     LIMITATION OF THE STUDY
    The major limitations of this study include time and access to relevant data. The time limit for this research was not sufficient enough for a study of this magnitude. Secondly, the issue of access to relevant data from the relevant authorities.  Most of the institutions were reluctant and uncooperative in releasing classified data to members of the public