The study examined the impact of capital market on Nigerian economic growth. The study specifically investigated the impact of market capitalization on GDP, all share index and value of transaction from 1990 to 2016. Using the time series data obtained from the CBN statistical bulletin. the study adopted the ordinary least square techniques to analyze the data collection. The findings revealed that market operation contributes to a greater extent to the gross domestic product in Nigeria, market capitalization plays a vital role in influencing the capital and the other capital market along with others such as all shares index (ASI) and value of transaction (VOT) are effected but not as MCAP. This study recommended that government should restore confidence to the market through regulatory authorities which will portray transparency, fair trading section and dealing in the stock exchange. Improve the position of the market capitalization by encouraging foreign investors to participants in the market.
CHAPTER ONE 1
1.1 BACKGROUND TO THE STUDY 1
1.2 STATEMENT OF THE PROBLEM 2
1.3 OBJECTIVES OF THE STUDY 4
1.4 RESEARCH QUESTION 5
1.5 RESEARCH HYPOTHESIS 5
1.7 SCOPE AND LIMITATION OF THE STUDY 6
1.8 ORGANIZATION OF THE STUDY 7
1.9 DEFINITION OF TERMS 7
CHAPTER TWO 10
LITERATURE REVIEW/THEORETICAL FRAMEWORK 10
2.1 INTRODUCTION 10
2.2 REVIEW OF CONCEPTUAL/THEORETICAL LITERATURE 11
2.3 CAPITAL MARKET AND ECONOMIC GROWTH 16
2.4 OVERVIEW OF THE NIGERIAN CAPITAL MARKET 18
2.5 IMPACT OF CAPITAL MARKET ON NIGERIAN ECONOMIC GROWTH 19
2.6 EMPIRICAL REVIEW 20
CHAPTER THREE 24
RESEARCH METHODOLOGY 24
3.1 INTRODUCTION 24
3.2 RESEARCH DESIGN 24
3.3 POPULATION OF THE STUDY 25
3.4 DATA ANALYSIS 25
3.5 MODEL SPECIFICATION 25
CHAPTER FOUR 28
DATA PRESENTATION, ANALYSIS AND INTERPRETATION 28
4.1 INTRODUCTION 28
4.2 DATA PRESENTATION 28
TABLE 4.1: DATA ON GDP, MCAP, ASI AND VOT 28
4.3 ANALYSIS OF RESULT 29
Table 4.2: Ordinary lest square (OLS) result for GDP model 29
Figure 4.2 30
4.4 HYPOTHESES TESTING AND INTERPRETATION OF RESULT 30
CHAPTER FIVE 35
SUMMARY, CONCLUSION AND RECOMMENDATION 35
5.1 SUMMARY 35
5.2 CONCLUSION 35
5.3 POLICY RECOMMENDATION 35
1.1 BACKGROUND TO THE STUDY
The capital market in any country is one of the major pillars of long-term economic growth. Capital formation entailed accumulated savings out of the current income of either organizations or individual capital market has been one of the major means through which foreign funds are injected into most economies and the tendency towards a global economy is more visible there than anywhere else. It is therefore, quite value to staff that growth of the capital market has become one of the barometers for measuring the overall economic growth of a nation (Emenuga, 1998).
The development of the capital market has generated two major sets of economic benefits.
First, it had improved the allocation of capital, because the prices of corporate debt and equity respond immediately to shifts in demand and supply, changes in the outlook for an industry are quickly embodied in current asset prices. When there is decline in demand, prices drop, and this signal makes investors which leads to a decline in economic growth.
The ability of companies in their early stages of development to raise funds in the capital markets is also beneficial because it allows companies to grow very quickly. This growth is turns results into general increase of output in the economy (Abdullahi, 2005).
Capital market mobilizes long-term debt and equity finance for investment in long-term asserts. Capital market, also help in boosting the financial system as well as improving the economic growth of a country.
Dealers in the securities segment of capital market include banking institutions, stock brokers, investment and merchant banker and venture capitalist that intermediaries between the market and the public.
In this product is to examine the impact of the capital market in harnessing and mobilizing these resourced (funds to generate economic growth in the country and consequently economic development.
1.2 STATEMENT OF THE PROBLEM
Nigerian capital market has undergone a series of reformed all with the hope of creating a stable economic growth. The most relent reformed was carried out in order to provide opportunities for greater funds mobilization, improved efficiency in resource allocation and provision of relevant information for appraisal.
It is expected as a result of the reform. The market can provides variety of financial instrument capable of enabling economic agents to pool, price and exchange risk. In spite of these that vital role that the reform is expected play, there is however a great concern on the performance of the Nigerian capital market is relation to the economic growth.
This in forms the need to evaluate the market on aggregate data basic in order to ascertain how influential it is on the economic growth of Nigeria.
Relating the growth of the economy to capital market indicators like;
Market Capitalization:- It is the total value of shares a publicity traded company. Market capitalization represented the aggregate of stock size (AdeWoyin, 2004) market capitalization is the measurement of the size of businesses and corporation which are equal to the market share price times the number of shares in this case shares that have been authorized, issued, and purchased by investors of a publicly traded company (Al-faki, 2006). Market capitalization is also calculated by multiplying the shares if company by the price per share.
Value of Transaction:- Transaction value as defined in article 1; as the price actually paid for the goods when sold for export to the country of importance.
It is the customers value of the imported goods computed on the bases of the price actually paid for at the time it was expected.
Transaction value is determined by ascertaining the price paid for the goods when the goods are sold for export and adjusting the price paid in accordance with subsection 48(5) of the custom Act.
All Share Price Index:- It is a measure of the change in the average prices of company shares overtime. All share price index is a series of number which shows the changing average value of the share prices of all companies on a stock exchange and which is used to measure of how well a market is performing.
A market index is a risk measure to judge the overall direction of the market and the scope of it’s movement. It is a statistical parameter to reflect the composite value of market characteristics.
1.3 OBJECTIVES OF THE STUDY
The main objective of the study is to examine the impact of capital market on the Nigerian economic growth. However, the specified objectives are to;
i. Determine the impact of market capitalization on the Gross Domestic Product (GDP).
ii. To evaluate the value of transaction of the capital market in relation to the economic growth in Nigeria.
iii. To examine the impact of the shared price index on Gross Domestic Product (GDP).
1.4 RESEARCH QUESTION
Based on the broad statement of the problem the following research questions were raised;
i. What is the relationship between Gross Domestic Product (GDP) and market capitalization.
ii. To what impact was value of transaction and growth of the Nigerian economy.
iii. Has all shares index have any impact on Gross Domestic Product (GDP).
1.5 RESEARCH HYPOTHESIS
In line with the objectives of the study the following hypothesis have been formulated in null form.
H01: Market capitalization has no significant impact on GDP.
H02: The volume of transaction has no significant impact on GDP.
H03: The all share index has no significant impact on GDP.
1.6 SIGNIFICANCE OF THE STUDY
It is a noted fact that any meaningful economic transformation of a country to take place, the capital market must be effectively active. It has been acknowledged fact that the economic strength or any nation is measured according to how actively and effectively the capital market is performing (Adamu, 2008). The study will be of immerse significance to regulatory authorized such as the CBN, NSE and JEL in looking up with sound financial policies and reforms that will be boost the performance of the capital market.
1.7 SCOPE AND LIMITATION OF THE STUDY
The economy is a large component with lot of adverse and sometimes complex parts, this research work only looked at a particular part of the economy (the financial sector). This work did not lover all the facets that makeup the financial sector, but focused only on the capital market and it’s activities as it impacts on Nigeria economic growth. The empirical investigation of the impact of the capital market on the economic growth in Nigeria was restricted to the period between 1990 and 2015 due to the non-availability of some important data.
The limitations of the study are; data problem, time constant, as there was no enough time to carry-out this research work. and lastly, finance as this limited the consistency needed in the course of the research.
In spite of the problems, efforts were put in place to enhance the quality of this study.
1.8 ORGANIZATION OF THE STUDY
The study is derived into five (5) chapters and organized as follows;
Chapter one (1) forms the introduction part, this is where the main theme of the research is given; it comprises of background to the study, statement of problem, objectives of the study, research questions, research hypothesis, significance of the study, scope and limitation of the study, organization of the study and definition of terms.
Chapter two (2) is the literature review of the impact of capital market on the economic growth of Nigeria.
Chapter three (3) forms the research methodology which includes; introduction, research design, population of the study, data analysis and model specification.
Chapter four (4) is the data presentation and analysis.
Chapter five (5) includes summary, conclusion and recommendation.
1.9 DEFINITION OF TERMS
Capital Markets:- Is defined as the market where medium and long-term finance can be raised (AkingboHungbe, 1996).
According to Alfaki (2006), the capital market network of specialized financial institutions, series of mechanism, processes and into as there that, in various was facilitate the bringing together of suppliers and users of medium to long-term capital for investment in economic growth. In conclusion capital market are markets from butting and selling entity and debt investment.
Economic Growth:- Economic growth is an increase in the capacity of an economy to produce goods and services, compared from one period of time to another.
Okpara (2006) opened that economic growth is the increase in the amount of goods and services produced in an economic which is measured by positive changes in a country’s Gross Domestic Product (GDP).
Gross Domestic Product (GDP):- Is a basic measure of a country’s overall economic output. It is the market value of all find goods and services made within the boarder of a country in a year (Sullivan and Sheffrin, 1996).
Impact: having a strong effect on someone or something