THE IMPACT OF THE CAPITAL MARKET ON INDUSTRIAL GROWTH IN NIGERIA
ABSTRACT
The world is a global village and a hub of financial transactions and activities. Money is the life blood of societies and business which drive the economy. For a country to be regarded as an advanced economy, it must be able to maximize profits and minimize cost. The Nigerian economy has witnessed growth in various spheres of the economy since the turn of the new millennium which has attracted both foreign direct investment as well as investment from within the country.
    These various business activities drive Nigeria toward the path to industrialization.
    The capital market is a market where long term securities are traded. These securities are also known as long term financial instruments which may include bonds, equities, real estates, precious metals, options, agricultural products etc.
    The main purpose of this study is to look at the impact of the capital market on industrial growth in Nigeria with emphasis placed on the capital market indicators such as index of industrial production. All share index, market capitalization etc.
    By making use of the Ordinary Least Square estimation, technique for the period 1995-2010, it was discovered that a positive significant relationship existed between All share index and the index of industrial production. It was also discovered that a significantly negative relationship existed between market capitalization of the Nigerian capital market and industrial growth in the Nigerian economy.
TABLE OF CONTENT
CHAPTER ONE: INTRODUCTION
1.1    Background to Study                
1. 2    Statement of the Research Problem            
1.3    Research Questions                
1.4    Objectives of the Study                    
1.5    Hypothesis of the Study    
1.6    Significance of the Study        
1.7    Scope of the Study            
1.8    Limitation of the Study                    
CHAPTER TWO: LITERATURE REVIEW
2.1    Introduction                
2.2    Definition of Capital Market            
2.3    Overview of the Nigerian Capital Market     
2.4     The Nigerian Security and Exchange Commission
2.5    Economic Growth                    
2.6    Capital Market and Economic Growth        
2.7    Market Capitalization                
2.8    Volume of Trade                        
2.9    Index of Industrial Production        
2.10    Impact of Capital Market on Industrial Growth in Nigeria                
2.11    Theoretical and Conceptual Framework        
2.12    Empirical Review on Other Countries        
2.13    Empirical Review on Nigeria                
CHAPTER THREE: METHODOLOGY OF THE STUDY
3.1    Introduction                
3.2    Model Specification                
3.3    Definition of Variables in the Model    
3.4    Sources of Data                    
3.5    Estimation Technique                    
CHAPTER FOUR: PRESENTATION AND ANALYSIS OF DATA
4.1     Introduction                        
4.2    Analysis of the Regression Result            
CHAPTER FIVE: SUMMARY, CONCLUSIONS AND RECOMMENDATIONS
5.1     Summary of Findings                    
5.2     Recommendations                
5.3     Conclusion                            
    References                             
Appendix                             
CHAPTER ONE
INTRODUCTION
1.1    BACKGROUND OF THE STUDY
    Every modern society clamours for economic growth and development that is self re-in-forcing. This is expected in the long run which guarantees a high standard of living and improvement in the general welfare of the citizenry. This is especially true for developing countries who have grouped with poverty, inequality and other development challenges for more than half a century but with minimal success. The literature is replete with various growth theories by development economists on the factors that can be seen in the works of Schumpeter (1911) “Theory of economic development”. Further knowledge is evident in the works. “Theory of economic development with unlimited supplies of labour” by Professor W. Author Lewis (1954) and “Pig push theory” of Professor Paul N. Rodstein Rodans (1943) among a list of others. The problem has never been a shortage of theories but on other factors which are critical to the growth process.
The experience of developing countries especially the ones in Sub-Saharan Africa and some parts of Latin America has shown that low savings and investment occasioned by the vicious cycles of poverty has been a binding constraints to economic growth (Jhingan, 1997). Since individual and national savings is low in developing countries, there is need to mobilize huge funds from this mass of people and channel them into large investment in productivity output and employment. The aforementioned shows that finance is critical to the realization of economic growth objectives for the purpose of amassing large amount of funds from the surplus units and channel such to deficit investors.
Every modern economic has a financial system which is represented in two important divisions namely: money market and capital market: both markets are the heart of the financial system. They complement each other and create a balance in the financial system. According to M.I. Jhingan (2004) money market is a market for short term securities or instruments that are close substitutes for money as obtained in the banking sector and other financial houses. The capital market on the other hand is a market that deals with long term securities. This is made up of institutions which facilitate the issuance and secondary trading of long term financial instruments.
The Lagos stock exchange now (the Nigerian stock exchange) was established in June 1 1961. The Nigerian stock exchange was expected to be the fulcrum around which the entire capital market rotates (stock exchange fact book, 2005).
Although the stock exchange is strictly for “existing” rather than “new” securities, it is a place where new industrial and commercial corporations of today can raise huge amounts of funds of competitive terms than no other institution in the capital market can possibly match. The Nigerian stock exchange is also expected to provide an avenue for the government, private sector industrialist to access funds to finance projects that will help push the Nigerian economy from its present state to a more desired state.
It should also provide an avenue for foreign direct portfolio investment to flow into the country to help alignment domestic investment. It should help to encourage individuals, business and government to save than to spend on consumption which will not guarantee self-sustainability in the long run.  
1.2    STATEMENT OF THE PROBLEM
    The Nigerian stock exchange has existed for over four decades, expectations are that by now there would be enormous economic growth especially with regards to financing the real sector but the realities on ground show that the economy has suffered from low growth, low savings and low investment. According to Obadan (2008). “The Nigerian economy is a low savings, low investment traps” “the Nigerian stock market is very narrow and disarticulated. This can be seen from its low market capitalization to GDP ratio, low volume of trade and turnover when compared to other stock exchanges like the New York and London stock exchange” (Osaze, 1997).
1.3    RESEARCH QUESTIONS
i.    What is the relationship between capital market and industrial growth in Nigeria?
ii.    Does market capitalization have any relationship with industrial growth?
iii.    What is the relationship between index of industrial production and industrial growth in Nigeria?
1.4    OBJECTIVES OF THE STUDY
    The main objectives of the study is to determine the relationship which the capital market has on industrial growth in Nigeria.
Specific objectives will be:
i.    To determine the relationship between market capitalization and industrial growth in Nigeria.
ii.    To determine the relationship between market volume and industrial growth in Nigeria.
iii.    To determine the relationship between index of industrial production and industrial growth in Nigeria.
1.5    HYPOTHESIS OF THE STUDY
i.    There is no relationship between market capitalization and industrial growth.
ii.    There is no relationship between market volume and industrial growth.
iii.    There is no relationship between index of industrial production and industrial growth.
1.6    SIGNIFICANCE OF THE STUDY
    A study of this nature is important to all the stakeholders in the socio-economic sphere of life. The results and information from this study will be useful to the government and policy makers with respect to the behavior towards the Nigerian capital market. Investor and financial analysts will find the information from this work useful for analytical and predictive purpose. It will also be important to international investors in the Nigerian capital market for profit oriented purposes.
    Academicians and students will find the information provided useful as an enrichment or addition to the knowledge base of the subject. It will be important to foreign investors in the Nigerian capital market for profit making and investment purposes. Lastly, it will help people to realize the catalytic role of the capital market in the growth process.
1.7    SCOPE OF THE STUDY
    This study will cover the period 1995-2010 and will rely heavily on secondary data i.e time series data obtained from the federal Bureau of statistic (FBS) Central Bank of Nigeria (CBN), annual publications and journals, data from the branch office of the Nigerian stock exchange in Benin City.
    The time 1995-2010 is chosen to enable us ascertain the long run impact of the capital market variables on the performance of the Nigerian economy. This study will be based exclusively on data for Nigeria and may be relevant to other countries that are on the same level of development with Nigeria.
1.8    LIMITATIONS OF THE STUDY
    This study is not immune to the forces that are capable of affecting the results but not sufficient enough to undermine the reliability of the information provided. One major constraints is finance. The researcher is on undergraduate student and will have to source for finances from family members, friends or personal amount which may be insufficient for a mammoth project of this nature.