IMPACT OF CAPITAL MARKET ON ECONOMIC GROWTH IN NIGERIA
TABLE OF CONTENT
CHAPTER ONE
INTRODUCTION …………………………………………..
1.1 Backgrounds to the Study ………………………..
1.2 Statement of the Research Problem …. ……….
1.3 Research Questions…………………………………
1.4 Objectives of the Study ……………………………
1.5 Hypotheses of the Study ………………………….
1.6 Significance of the Study………………………….
1.7 Scope of the Study …………………………………
1.8 Limitations to the Study…………………………..
CHAPTER TWO
LITERATURE REVIEW….………………………………..
2.1 Brief Overview of the Nigerian Capital Market…
2.2 Functions and Instruments Traded in the
Nigerian Capital Market…………………………….
2.3 The Concept of Economic Growth………………..
2.4 The Role of Capital Market in Economic Growth
and Development of Nigeria………………………
2.5 Market capitalization (MC)………………………..
2.6 Gross domestic product (GDP)…………………..
2.7 Turnover Ratio……………………………………….
2.8 Total Value of Shares Traded…………………….
2.9 Government Stocks…………………………………
2.10 New Issues (NI)……………………………………..
2.11 Evidence From Sub-Saharan Africa…………….
2.12 Evidence from Nigeria……………………………...
2.13 Theoretical Framework……………………………..
CHAPTER THREE
METHODOLOGY……………….…………………………..
3.1 Introduction……………………………………………
3.2 Model Specification………………………………….
3.3 Method of data analysis…………………………….
3.4 Sources of Data……………………………………….
CHAPTER FOUR
EMPIRICAL ANALYSIS AND RESULTS……………….
4.1 Introduction…………………………………………….
4.2 Presentation and Analysis of Results…………….
4.3 Policy Implications……………………………………
CHAPTER FIVE
SUMMARY OF FINDINGS, RECOMMENDATIONS AND
CONCLUSIONS…………………………………………………
5.1 Summary of Findings………………………………….
5.2 Policy Recommendations…………………………….
5.3 Conclusions……………………………………………....
REFERENCES………………………………………………….
APPENDICE………………………………………………………
IMPACT OF CAPITAL MARKET ON ECONOMIC GROWTH IN NIGERIA
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
The place of capital market in an emerging economy and in building a virile nation like Nigeria cannot be under estimated. The capital market is the financial market where medium to long term funds 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. It 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.
In spite 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 market has not really contributed as it should to the growth and development of Nigeria. However, with the ongoing reforms and deregulation in the financial system, we hope to see the emergence of a more robust capital market, offering arrays of financial instruments that will meet the needs of the diverse investing public.
1.2 STATEMENT OF THE RESEARCH PROBLEM
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, it is therefore imperative to evaluate the current relationship between capital market and economic growth in Nigeria over time and to see if there is any capital market-led growth in Nigeria.
1.3 RESEARCH QUESTIONS
(i) does market capitalization has any impact on the growth of the Nigerian economy?
(ii) What is the relationship between total listed companies and economic growth in Nigeria?
(iii) Is there any relationship between value of traded stocks and economic growth?
(iv) does total new issues affect the growth of the Nigerian economy?
(v) Is there any relationship between government stocks traded in the capital market and economic growth?
1.4 OBJECTIVES OF THE STUDY
The study seeks to determine;
(i) Whether market capitalization has any impact on the growth of the Nigerian economy.
(ii) The relationship between total listed companies and economic growth.
(iii) The impact of value of traded stocks on the Nigerian economy.
(iv) Whether total new issues affect economic growth in Nigeria.
(v) The impact of government stocks traded in the capital market on the growth of the Nigerian economy.
1.5 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) government stocks positively influence economic growth in Nigeria
1.6 SIGNIFICANCE OF THE STUDY
The study will 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.
Finally, the study will also be very useful to both the academia, researchers, finance students and other related disciplines who may want to conduct further studies on the subject matter.
1.7 SCOPE OF THE STUDY
The study will basically examine the relationship between capital market and economic growth in Nigeria. The population of study which is also the sample size will comprise all the listed companies on the Nigerian stock market for about thirty one years (1980 to 2012). Relevant data shall be sourced from the Central Bank of Nigeria Statistical Bulletin and the Nigerian all share index.
1.8 LIMITATION OF THE STUDY
The major limitations of this study include:
i) Smallness of the sample size
ii) Inability to obtain a completely random sample
iii) Low response rate and access to relevant data from the relevant authorities. Most of the institutions were relevant and uncooperative in releasing classified data to members of the public.
