IMPACT OF CAPITAL MARKET ON ECONOMIC GROWTH OF NIGERIA (1981-2013)
- BACKGROUND TO THE STUDY
The capital market is an organized financial market highly specialized in the buying and selling of equity and dept instruments; they are channels for saving and investment between suppliers. The capital markets are important to the sustenance of an economy, since capital is a vital component for generating economic output.
In fact, the positive relationship between capital accumulation and real economic growth has long been affirmed in economic theories (Anyanwu, 1996).
The growth and development of the capital market in Nigeria can be traced to 1946 with the floating of six hundred thousand naira (more than N300,000 pounds sterling) worth of government stocks. However, an organized market for the secondary trading of issued stock was inadequate. In 1959 following the establishment of the central Bank of Nigeria (CBN) a year earlier, a four million naira. Federal government of Nigeria development loan stock was issued in line with it role of fostering economic and indeed financial development. In 1986, during Babangida administration Nigeria embraced the international monitory fund (IMF) and the structural adjustment programme (SAP) which influenced the economic policies of the Nigeria government and led to reform in the late 1980’s and early 1990’s. The programme was proposed mainly to rapidly and effectively transform the Nigeria economy within two years (Yesufu 1996). Government to judiciously implement some of its policy measures and this engendered economic growth. (Oyefusi and Mogbolu 2003).
However, until SAP was abandoned in 1994 by Abacha administration, the objective were not achieved due to the inability of the notable reforms such as removal of oil subsidy in 1988 to the tune of 80% interest deregulation from August 1987. Financial market reform and public sector which entail about 111 public owned enterprises.
The Nigeria stock was to play a key role during the offer of the shares of the affected enterprise (Wold Bank, 1994, Anyanwu et al, 1997, Oyefusi and Mogbolu, 2003). The introduction of SAP in Nigeria has resulted in significant growth of the financial sector and the privatization exercise which exposed investor and companies to the significance of the stock market (Alile, 1996, Soyode 1990).
Ariyo, and Adelegan (2005) contend that the liberalization of capital market led to the growth of the Nigeria capital market, yet its impact at the macro economic level was jethsoned. Again the capital market was instrumental to the initial twenty five banks that were able to meet the minimum capital requirement of N25 billion during the banking sector consolidation in (2005), by the then government of CBN, Chukwuma Soludo. The stock market has helped government and corporate entities to raise long term capital for financing new projects , expanding and modernizing industrial /commercial concern (Nwankwo 1991).
We use econometric technique to show the relationship between capital market performance and economic growth. Given the roles the capital market has played during the privatization of public owned enterprises
recent recapitalization of the Banking sector and revenue of long term funds to various government and companies in Nigeria, the objective of this study therefore is to evaluate the level of development of the capital market and how it has impacted positively on economic growth.
- STATEMENT OF THE PROBLEM
Mobilization of resource for economic growth has long been the primary target of development (Demiriguc –kunt and Levine, 1996). They cannot be a meaningful economic growth without a vibrant capital market. To this end, various papers, research works, seminars etc have been written and held to evaluate the activities of the Nigeria capital market.
It is now increasingly being recognized that the development process of the Nigeria economy depend to a reasonable extent on the entity of the macro sectors and as such their financing deserves attention.
In the light of the foregoing, this research would attempts to examine the contribution of the capital markets (with particular reference to the stock exchange) to the growth and development of the Nigeria economy over the years.
- RESEARCH QUESTIONS
This study is guided by the following research questions
- What is the performance of the capital market in relation to economic growth in Nigeria?
- How could the capital market through its important roles encourage economic growth in Nigeria?
1.4 OBJECTIVES OF THE STUDY
The aims of the study are:
- To assess the performance of the capital market in relation to the economic growth.
- To examine the impact of capital market on Nigeria economics growth.
- RESEARCH HYPOTHESIS
The hypothesis that would be tested in the course of this study is stated as shown below:
H0: Capital market operations have no significant impact on Nigeria economic growth.
HI: Capital market operations has a significant impact on Nigeria economic growth.
- SIGNIFICANCE OF THE STUDY
This study will be significant in the following ways:
- It will help to provide a broad view of the functionality and operation of the capital market.
- It will further reveal the roles of capital market in the economic growth and development of Nigeria.
- It will, to no small extent, help in other research related topics.
1.7. SCOPE AND LIMITATIONS OF THE STUDY
This study is primarity focused on the financial sector of the Nigeria economy, with particular interest in the operation of the capital market, as well as its roles in the growth and development of the country’s larger economy. This will cover the periods between 1981 to 2013.
Meanwhile, the major constraints or limitations to this study are inadequacy of material and time.
Also, the research is capital intensive, and this poses a serious to the researcher.