CRITICAL ANALYSE OF THE IMPACT OF NIGERIA CAPITAL MARKET

INTRODUCTION

The performance of the stock market is an impetus for economic growth and development. The economic growth was proxied by Gross Domestic Product (GDP) while the capital market variables considered include; Market Capitalization (MCAP), Total New Issues (TNI), Value of Transactions (VLT), and Total Listed Equities and Government Stocks (LEGS).  

Applying Johansen co-integration and Granger causality tests, results show that the Nigerian capital market and economic growth are co-integrated. This implies that a long run relationship exists between capital market and economic growth in Nigeria. The causality test results suggest bidirectional causation between the GDP and the value of transactions (VLT) and a unidirectional causality from Market capitalisation to the GDP and not vice versa.  The F statistics is significant at 5 percent using a two-tailed test. On the other hand, there is no “reverse causation” from GDP to market capitalization. 

Furthermore, there is independence “no causation” between the GDP and total new issues (TNI) as well as GDP and LEGS.  This is a clear indication of the relative positive impact the capital market plays on the economic growth of the country. The evidence from this study reveals that the activities in the capital market tend to impact positively on the economy.  

CRITICAL ANALYSE OF THE IMAPCT OF NIGERIA CAPITAL MARKET

   1.     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).

    2.It has the ability to facilitate and mobilize saving and investment (Okodua and Ewetan, 2013; Donwa and Odia, 2010). Shallu (2014) describes the capital market as a market where borrowing and lending of long term funds takes place involving both debt and equity like shares, debentures, bonds etc.

    3. Capital market plays a very important role in promoting economic growth through the mobilization of long-term savings and the savings get invested in the economy for productive purpose.

    4.Capital market contributes to economic growth through the specific services it performs either directly or indirectly, notable among these functions are: mobilization of savings, creation of liquidity, risk diversification, improved dissemination and acquisition of information, and enhanced incentive for corporate control

    

    5. Nigerian capital market have recognised the tremendous performance the market has recorded in recent times, Ngerebo and Torbira, (2014) reveal that there are two divergent opinions on the role of capital market activities in Nigeria; the first view is that capital market activities synchronize the divergent preferences of portfolio managers and financial institutions and those of savers by mobilizing long-term funds; the alternative view is that the capital market merely promote investment in consumer goods and not the acquisition of new fixed assets that are invested rather than consumed. 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.

    6.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.

CONCLUSION

The analysis reveals that the capital market impact on economic growth via market capitalization, value of transaction and total listing of equity and government stock. As it was observed market capitalization, government stock and value of transaction are important capital market variables that are capable of influencing economic growth. Hence the capital market remain one of the mainstream in every economy that has the power to influence or impact economic growth therefore the organized private sector is to invest in it. The market capitalization have not impact significantly on the GDP while volume of transaction and total listed equities and Government stock have significant impact on the GDP. The government is therefore advised to put up measures to stem up investors’ confidence and activities in the market and more foreign investors should be encouraged to participate in the market for improvement in the declining market capitalization so that it could contribute significantly to the Nigerian economic growth.

RECOMMENDATION

It is recommended therefore that the regulatory authority should initiate policies that would encourage more companies to access the market and also be more proactive in their surveillance role in order to check sharp practices which undermine market integrity and erode investors’ confidence.

REFERENCES
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, pp. 1-7.

Anyanwu, J. C. (1996) Monetary Economics: Theory, Policy and Institutions. Lagos: Hybrid publishers limited.
Alile, H. I. and Anao, R. A. (1986) The Nigerian Stock Market in Operation. Lagos: Jeromelaiho and Associate Limited.

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.

Kaserer, C. and Rapp, M. S. (2014) “Capital Markets and Economic Growth: Long-Term Trends and Policy Challenges”. The Alternative Investment Management Association Research Report. March, pp. 1-88.