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TOPIC : THE ROLE OF CAPITAL MARKET IN ECONOMIC GROWTH OF NIGERIA (1986 - 2012)
The capital market is a highly specialized and organized
financial market and indeed essential agent of economic
growth and development (Odetayo and Sajuyigbe, 2012;
Okoye and Nwisienyi, 2013) because of its ability to
facilitate and mobilize saving and investment (Okodua
and Ewetan, 2013; Donwa and Odia, 2010). Adeusi, et
al. (2013) opine that capital market is a driver or
lubricant that keep turning the wheel of the economy
to growth and development because of its imperative
function of not just mobilizing long term funds and
channelling them to productive investment but also efficiently
allocating these funds to projects of best returns to
To a great extent, the positive relationship between
capital accumulation and real economic growth has long
been affirmed in economic theories (Anyanwu, 1996; Osamwonyi
and Kasimu, 2013). Success in capital accumulation and
mobilization for development varies among nations, but
it is largely dependent on domestic savings and inflows
of foreign capital (Osamwonyi and Kasimu, 2013; Okoye
and Nwisienyi, 2013). Therefore, to arrest the menace
of the current economic downturn, effort must be geared
towards effective resource 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 (Adeusi, et al. 2013).
The development of capital market in Nigeria, as in
other developing countries, has been induced and fostered
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 (Alile and Anao, 1986).
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 was 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 were 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
and now in Federal Capital Territory (FCT) Abuja some
other cities. 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 issued was terribly poor.
Owolabi and Ajayi (2013) posit that the links between
saving, capital formation and economic growth on the
one hand and direction of causality on the other, still
remain subject to further analysis across countries
stressing that accepting that the relationship is unidirectional
(i.e. moving from savings to investment and hence to
economic growth) may be misleading. Therefore, this
project work will examine the role of the capital market
in harnessing and mobilizing these resources to generate
economic growth in the country and consequently, economic
OF THE PROBLEM
There is abundant evidence that most Nigerian businesses
lack long-term capital. According to Donwa and Odia
(2010), the paucity of long-term capital has posed the
greatest predicament to economic development in most
African countries including Nigeria. The business sector
has depended mainly on short-term financing such as
overdrafts to finance even long-term capital. Based
on the maturity matching concept, such financing is
risky. All such firms need to raise an appropriate mix
of short- and long-term capital (Demirguc-Kunt and Levine
Most recent literatures on the Nigeria capital market
have recognised the tremendous performance the market
has recorded in recent times. However, the vital role
of the capital market in economic growth and development
has not been comprehensively investigated thereby creating
a research gap in this area. This study is undertaken
to examine the contribution of the capital market in
the Nigerian economic growth and development. Aside
the social and institutional factors inhibiting the
process of economic development in Nigeria, the bottleneck
created by the dearth of finance to the economy constitutes
a major setback to its development. As a result, it
is necessary to evaluate the Nigerian capital market.
OF THE STUDY
The broad objective of this study is to examine the
activities and performance of Nigerian capital market.
The specific objectives of the study are as follows:
1. To evaluate the performance of the capital market
in relation to the economic growth in Nigeria;
2. To examine the operations of the Nigerian capital
3. To examine the rate at which new stocks are issued
on the capital market.
4. To make recommendations as to how the operations
of the market could be improve to boost economic growth
and development of Nigeria.
QUESTIONS AND HYPOTHESIS
This research shall be guided by the following research
1. How does the capital market impact on the economic
growth and development process in Nigeria?
2. What is the trend of trading activities on the Capital
3. What is rate at which new stocks are issued on the
Nigerian capital market?
4. How could the capital market through its crucial
role stimulate economic growth in Nigeria?
The hypothesis that would be tested in the course of
this research is stated below as:
H0: That the capital market operations have not contributed
to Nigerian economic growth.
OF DATA AND BRIEF METHODOLOGY
The data for this study would be obtained mainly from
secondary sources, particularly from Central Bank of
Nigeria (CBN) publications and that of the Federal Office
of Statistics and relevant journals, textbooks and financial
newspapers. The data to be collected include: Gross
Domestic Product, market capitalisation, All-Share index,
market volume and market turnover.
The research work will make use of the econometric procedure
in estimating the relationship between capital market
operations and Nigerian economic growth. The Ordinary
Least Square (OLS) technique will be employed in obtaining
the numerical estimates of the coefficients in the model
formulated below. The OLS method is chosen because it
possesses some optimal properties; its computational
procedure is fairly simple and it is also an essential
component of most other estimation techniques. The estimation
period will cover 1986 through 2012 due to the non-availability
of some important data.
OF THE STUDY
The economy is a large component with lot of diverse
and sometimes complex parts; this research work will
only look at a particular part of the economy (the financial
sector). This work will not cover all the facets that
make up the financial sector, but shall focus only on
the capital market and its activities as it impacts
on the Nigerian economic growth. The empirical investigation
of the impact of the capital market on the economic
growth in Nigeria shall be restricted to the period
between 1986 and 2012 due to the non-availability of
some important data.
OF THE STUDY
The study will explore the impact or effectiveness of
capital market instruments on Nigerian economic growth.
Though the scope of study will be limited to the capital
market, it is hoped that the exploration of this market
will provide a broad view of the operations of the capital
market. It will contribute to existing literature on
the subject matter by investigating empirically the
role, which the capital market plays in the economic
growth and development of the country. The main importance
of this study is that it will provide policy recommendations
to policy-makers on ways to improve operations and activities
of the capital market.
OF THE STUDY
The study shall commences by providing a background
of the subject matter justifying the need for the study
in chapter one. Chapter two shall present related literature
concerning the role of capital market in economic growth
and development. The chapter shall also present the
theoretical framework for the study. The research methodology
shall then be outlined in chapter three while the chapter
four focuses on the data presentation and analysis.
Concluding comments in chapter five shall reflect on
the summary, conclusion and recommendations.
Adeusi, S. O.; Sulaiman, L. A. and Azeez, B. A. (2013)
“Impact of Capital Market Development on the Nigerian
Economy: A Post-SAP Analysis”. Journal of
Economics and Behavioral Studies. Vol. 5, no. 1,
Anyanwu, J. C. (1996) Monetary Economics: Theory,
Policy and Institutions. Lagos: Hybrid publishers
Alile, H. I. and Anao, R. A. (1986) The Nigerian
Stock Market in Operation. Lagos: Jeromelaiho and
Demirgüç-Kunt, A. and Levine, R. (1996)
“Stock Market, Corporate Finance and Economic
Growth: An Overview”. The World Bank Review.
Vol. 10, no. 2, pp. 223-239.
Donwa, P. and Odia, J. (2010) “An Empirical Analysis
of the Impact of the Nigerian Capital Market on Her
Socio-economic Development”. Journal of Social
Sciences. Vol. 24, no. 2, pp. 135-142.
Odetayo, T. A. and Sajuyigbe, A. S. (2012) “Impact
of Nigerian Capital Market on Economic Growth and Development”.
International Journal of Arts and Commerce.
Vol. 1, no. 5, pp. 1-8.
Okodua, H. and Ewetan, O. O. (2013) “Stock Market
Performance and Sustainable Economic Growth in Nigeria:
A Bounds Testing Co-integration Approach”. Journal
of Sustainable Development. Vol. 6, no. 8, pp.
Okoye, V. O. and Nwisienyi, K. J. (2013) “The
capital market contributions towards economic growth
and development; the Nigerian experience”. Global
Advanced Research Journal of Management and Business
Studies. Vol. 2, no. 2, pp. 120-125.
Osamwonyi, I. O. and Kasimu, A. (2013) “Stock
Market and Economic Growth in Ghana, Kenya and Nigeria”.
International Journal of Financial Research.
Vol. 4, no. 2, pp. 83-98.
Owolabi, A. and Ajayi, N. O. (2013) “Econometrics
Analysis of Impact of Capital Market on Economic Growth
in Nigeria (1971-2010)”. Asian Economic and
Financial Review. Vol. 3, no. 1, pp. 99-110.
Regression Data and Results are included
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