THE IMPACT OF CAPITAL MARKET ON ECONOMIC GROWTH AND DEVELOPMENT IN NIGERIA

THE IMPACT OF CAPITAL MARKET ON ECONOMIC GROWTH AND DEVELOPMENT IN NIGERIA

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TABLE OF CONTENTS

Title page    -        -        -        -        -        -        -        -        -        -        i

Declaration -        -        -        -        -        -        -        -        -        -        ii

Certification                   -        -        -        -        -        -        -        -        -        iii

Dedication            -        -        -        -        -        -        -        -        -        iv

Acknowledgement                   -        -        -        -        -        -        -        -        v

Table of Contents          -        -        -        -        -        -        -        -        vi

Abstract      -        -        -        -        -        -        -        -        -        -        x

CHAPTER ONE

1.0     Introduction                   -        -        -        -        -        -        -        -        1

1.1     Background of the Study                  -        -        -        -        -        -        1

1.2     Statement of the Problem                  -        -        -        -        -        -        4

1.3     Objectives of the Study           -        -        -        -        -        -        5

1.4     Research Questions       -        -        -        -        -        -        -        5

1.5     Hypothesis of the Study          -        -        -        -        -        -        -        6

1.6     Significance of the Study                  -        -        -        -        -        -        6

1.7     Scope and Limitation of the study    -        -        -        -        -        7

1.8     Organization of the Study       -        -        -        -        -        -        7

1.9     Definition of Terms       -        -        -        -        -        -        -        8

CHAPTER TWO

2.0     Introduction                   -        -        -        -        -        -        -        -        11

2.1     The Concept of Capital Market                  -        -        -        -        -        12

2.1.2  Definition of Capital Market   -        -        -        -        -        -        13

2.1.3  Capital Markets Components and function         -        -        -        -        13

2.1.4  Role of Capital Market  -        -        -        -        -        -        -        15

2.1.5  Features of the Capital Market         -        -        -        -        -        -        17

2.1.6  Types of Capital Market         -        -        -        -        -        -        -        19

2.2     Recent development in the Capital Market -        -        -        -        24

2.3     Prospects of the Nigerian Capital Market  -        -        -        -        27

2.4     Challenges of the Nigerian Capital    -        -        -        -        -        28

2.5     Capital market and Economic Growth       -        -        -        -        -        30

2.6     Overview of the Nigerian Capital Market   -        -        -        -        33

2.7     The Nigerian Security and Exchange Commission                  -        -        36

2.8     The Nigerian Stock Exchange -        -        -        -        -        -        38

2.9     Economic Growth                   -        -        -        -        -        -        -        40

2.10   Impact of capital Market on Economic Growth and Development in

 Nigeria       -        -        -        -        -        -        -        -        -        41

2.11   Empirical Review -        -        -        -        -        -        -        -        42

2.12   Empirical Review on Nigeria   -        -        -        -        -        -        44

CHAPTER THREE

3.0     Introduction                   -        -        -        -        -        -        -        -        47

3.1     Research Design   -        -        -        -        -        -        -        -        47

3.2     Research Area      -        -        -        -        -        -        -        -        48

3.3     Source of Data Collection       -        -        -        -        -        -        48

3.4     Data Analysis Technique                  -        -        -        -        -        -        49

3.5     Model Specification       -        -        -        -        -        -        -        49

 

CHAPTER FOUR

4.1     Presentation and analysis of Regression Results  -        -        -        51

 

CHAPTER FIVE

5.0     Introduction                   -        -        -        -        -        -        -        -        57

5.1     Conclusion -        -        -        -        -        -        -        -        -        58

5.2     Recommendation -        -        -        -        -        -        -        -        59

References  -        -        -        -        -        -        -        -        -        60


 

ABSTRACT

This study investigated the impact of capital market on economic growth and development in Nigeria. This study was informed based on the gap between capital market growth in Nigeria and unstable economic growth in the country. Based on this, identified research objectives include to evaluate the impact of the capital market on economic growth and development in Nigeria, to access the case with which firms and businesses in Nigeria can access funds in the capital market and to identify the challenges facing the market and its impact on businesses in the country. The research was set to attain these objectives through the analysis of the following research questions and hypothesis which includes; there is no significant relationship between GDP and capital market activities which were measured using market capitalization and All- share index (ALSI). Data required for the study was collected using secondary sources through Central Bank of Nigeria (CBN) Statistical Bulletin 2015, and the data collected crossed 30 years (1985-2015). Simple linear regression using Ordinary Least Square (method) was employed in the analysis of the data. The findings include thatMarket Capitalization has a direct and significant relationship with Gross Domestic Product (GDP), while all share index has a negative but significant effect on Gross Domestic Product (GDP) in Nigeria. It was concluded that capital market activities in Nigeria has a significant impact on economic growth and development in Nigeria. It was recommended that there is need for more reforms in the Nigerian capital market to ensure that there is more pronounced impact in the economic growth and development in Nigeria, and that there is need for capital market to promote private domestic investment in Nigeria to enhance the growth of GDP  in Nigeria,


 

CHAPTER ONE

INTRODUCTION

1.0             INTRODUCTION

The capital market in any country is one of the major pillars of long term economic growth and development. The market serves a broad range of clientele including different levels of government, corporate bodies, and individuals within and outside the country. For quite some time, the capital market has become one of the means through which foreign funds are being injected into most economics, and so the tendency towards a global economy is more feasible/visible there than anywhere else. It is, therefore, quite valid to state that the growth of the capital market has become one of the barometers for measuring overall economic growth of a nation. Thus, an increase in the market share of a public limited liability company through the sales of its shares increases its capital base and encourages expansion leading to a higher level of growth and productivity. This study will try to clarify these and related issues.

1.1     BACKGROUND OF THE STUDY

The capital market is a highly specialized and organized financial market and indeed essential agent of economic development because of its ability to facilitate and mobilize saving and investment. To a great extent, the positive relationship between capital accumulation real economic growths has long affirmed in economic theories.  Anyanwu (1993).                                                    Success in capital accumulation and mobilization for development varies among nations, but it is largely dependent on domestic savings and inflows of foreign capital. Therefore, to arrest the menace of the current economic downturn, effort must be geared towards effective resources mobilization. It is in realization of this that consideration is given to measure for the development of capital market as an institution for the mobilization of finance from the surplus sectors to the deficit sectors.  (Alile&Anao, 1990).                                   The development of capital market in Nigeria, as in other developing countries has been induced by the government. Though prior to the establishment of stock market in Nigeria, there existed some less formal market arrangements for the operation of capital market. It was not prominent until the visit of Mr. J. B. Lobynesion in 1959, on the invitation of the Federal government, to advice on the role the Central Bank could play in the development of local money and capital market. As a follow-up to this, the government commissioned and a set up the Barback Committee to study and make recommendations on the ways and means of establishing a stock market in Nigeria as a formal capital market. Acting on the recommendation of the committee, the Lagos Stock Exchange (as it was called then) was set-up in March 1960, and in September 1961, it was incorporated under Section 2 cap 37, through the collaborative effort of Central Bank of Nigeria, the Business Community and Industrial Development Bank.Central Bank of Nigeria (2009).        With the establishment of the Central Bank of Nigeria in 1959 and the coming into existence of the Lagos Stock Exchange in 1961 and Subsequently, the Nigeria Stock Exchange by an Act in 1979, a sound foundation was laid for the operation of the Nigerian Capital Market for trading in securities of long term nature needed for the financing of the industrial sector and the economy at large. After the incorporation of the Lagos Stock Exchange, it was granted further protection under the law and its activities were placed under some sort of control by the government, hence the passing of the Lagos Stock Exchange Act. However, the Lagos Stock Exchange was only operational in Lagos. By the mid 70’s, the need for an efficient financial system for the whole nation was emphasized, and a review by the government of the operations of the Lagos Stock Exchange market was advocated. The review was carried out to take care of the low capital formation, the huge amount of currency in circulation which was held outside the banking system, the unsatisfactory demarcation between the operation of Commercial Banks and the emerging class of the Merchant Banks, and the extremely shallow depth of the capital. In response to the problems mentioned above, the government accepted the principle of decentralization but opted for a National Stock Exchange, which will have branches in different parts of the country. On December 2nd 1977, the memorandum and article of association creating the Lagos Stock Exchange was transformed into the Nigerian Stock Exchange, with branches in Lagos, Kaduna, Port-Harcourt, Yola and in Federal Capital Territory (FCT) Abuja and some other cities.      Ogwunike, F.O. &Omole , D.A (1996).                                   The history of Nigeria Capital Market could be traced to 1946 when the British colonial administration floated a N600, 000 local loan stock bearing interest at 3¼% for the financing of developmental projects under the Ten-Years Plan Local Ordinance. The loan stock, which had a maturity of 10-15 years, was oversubscribed by more than N1 million, yet local participation of the issue was terribly poor. Certainly, prospects for investment in Nigeria, but the overriding consideration in this project is to examine the impact of the capital market in harnessing and mobilizing these resources (funds) to generate economic growth in the country and consequently economic development.

1.2     STATEMENT OF THE PROBLEM

Some Nigerian businesses do not have access to long-term capital, and there is enough proof to show it. The business sector has depended mainly on short-term financing such as overdrafts to finance, long-term project. Based on the maturity matching concept, such financing is risky. Most recent literature on the Nigeria capital market has recognized the tremendous performance the market has recorded in recent times. This study is undertaken to examine the contribution of the capital market in the economic growth and development of Nigeria.  The delay created by the meagreness of finance to the economy constitutes a major setback to its development. In view of this, it is necessary to evaluate the Nigerian capital markets ability to provide long term funds for growth and development.

1.3     OBJECTIVES OF THE STUDY

The broad objective of this study is to study the impact of capital market on the economic growth and development in Nigeria. The specific objectives of the study are as follows:

1.    To evaluate the impact of the capital market on economic growth and development in Nigeria.

2.    To access the ease with which firms and businesses in Nigeria can access funds in the capital market.

3.    To identify the challenges facing the market and its impact on businesses in the country.

1.4     RESEARCH QUESTIONS

This research was guided by the following research questions:

i.     What is the impact of the capital market on economic growth and development in Nigeria?

ii.    How can the capital market through its crucial role stimulate economic growth in Nigeria?

iii.   What are the challenges facing capital market of market operations in Nigeria.

1.5     HYPOTHESIS OF THE STUDY

The hypothesis that would be tested in the course of this research is stated below as:

Hypothesis 1:

H0: There is no significant relationship between GDP and capital market activities

Hypothesis 2:

H0: There is a negative relationship between GDP and market capitalization.





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