Abstract
This study was carried out to determine the Effect of Capital Market Institutions on the Development of Nigerian economy with specific objectives being to determine the effect of Capital Market performance on unemployment rate in Nigeria; to assess the effect of Capital Market performance on poverty level in Nigeria and to ascertain the effect of Capital Market performance on the standard of living in Nigeria. The study made use of descriptive research design using ordinary least square regression analysis to analyse the data with the aid of Eviews9. The findings of the study revealed that an increase in the Capital Market performance will decrease Unemployment rate, an increase in the Capital Market performance will lead to decrease in poverty level, and an increase in the Capital performance will lead to increase in standard of living. The study also revealed that Capital Market performance has significant effect on unemployment rate in Nigeria, there is significant effect of Capital Market performance on poverty level in Nigeria, and there is significant effect of Capital Market performance on standard of living in Nigeria. The study therefore recommended that the relevant regulatory agencies in the capital market should be focused on enhancing the efficiency and transparency of the market in order to improve investor’s confidence. Also, there is need for effective and favourable macroeconomic environment to facilitate the causality from stock market to economic growth. It must be understood that growing economics with significant and consistent impact on living standards of the people are a product of effective social, economic and political institutions and his is a major setback in the Nigeria environment. Thus there is the need to ensure that the channels of capital market induced growth are built around effective systems and that the policy institutions are actively involved in marking systemic checks and appropriate policy innovations to ensure capital market lead economic growth.
TABLE OF CONTENTS
Cover page i
Title page ii
Declaration iii
Certification iv
Dedication v
Acknowledgements vi
Table of Contents vii
Abstract xi
CHAPTER ONE: INTRODUCTION
1.1 Background of the Study 1
1.2 Statement of the Problem 3
1.3 Research Objectives 4
1.4 Research Questions 5
1.5 Research Hypotheses 5
1.6 Significance of the Study 5
1.7 Scope of the Study 6
1.8 Limitations of the Study 6
CHAPTER TWO: REVIEW OF RELATED LITERATURE
2.1 Conceptual Framework 7
2.1.1 The Nigerian capital market
7
2.1.2 Structure of the Nigerian
capital market 8
2.1.3 Capital Market Reforms 9
2.1.4 Roles of the capital market 11
2.1.5 Concept of capital market
variables 12
2.1.6. Concept of capital market variables 16
2.1.7 Economic Growth 17
2.1.8 Gross Domestic Product
(GDP) 18
2.1.9 Analysis of the Nigerian capital market’s performance 19
2.1.10 The role of the capital
market in economic development 20
2.2 Theoretical Framework 21
2.2.1 Harrod – Domar growth model
21
2.2.2 Solow-Swan growth theory 22
2.2.3 Arrow Kenneth Growth Theory
(Endogenous Growth Theory) 22
2.2.4 Paul Romer Growth Theory 22
2.3 Empirical Review 23
2.4 Summary/ gap in literature 25
CHAPTER THREE: METHODOLOGY
3.1 Research Design 27
3.2 Area of Study 27
3.3 Population of the Study 27
3.4 Sample size determination 27
3.4 Sources of Data Collection
28
3.4.1 Secondary Data 28
3.5 Method of Data Analysis 28
3.6 Model Specification 28
3.6 Variable Measurement 29
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS
4.1 Data Presentation and Analysis 31
4.2 Test of Hypotheses 35
4.3 Discussion of findings 35
CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION
AND RECOMMENDATION
5.1 Summary of Findings 37
5.2 Conclusions 40
5.3 Policy Implications 42
5.4 Recommendations 42
REFERENCES
LIST OF TABLES
4.1 Regression Result of the Effect of Capital Market Performance on
Unemployment Rate in Nigeria 31
4.2 Regression Result of the Effect of Capital Market Performance on
Poverty Level in Nigeria 32
4.3 Regression Result of the Effect of Capital Market Performance on
Standard of Living in Nigeria 33
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
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. The
capital market is a subset of the financial system that is involved in the
provision of longterm funds for productive use. The capital market drives any
economy’s economic growth and development because it is necessary for long term
growth capital formation (Osaze, 2000).
Capital market institutions are a number
of financial institutions which
are directly involved with real investment in the economy. These institutions
mobilize savings from the people and channel funds for financing the
development expenditure of the industry and government of a country.
The financial institutions take
maximum care in investing funds in those projects where there is high degree of
security and the income is certain. The main institutional sources of capital
market are as follows; insurance companies, pension funds, building societies,
investment trusts, unit trust, saving banks, specialized finance corporation,
commercial banks, and stock exchange.
The development of the capital market has improved the
allocation of capital, because the prices of corporate debt and equity respond
immediately to shifts in demand and supply. The signal created by change in
price of a security encourages investors as a result of higher prices or
discourages them due to lower prices; this is because the investors often used
the prices of securities to predict the likely trend of the market as either
bullish or bearish. Businesses with high
returns attract additional capital quickly and easily. When there is decline in
demand, prices drop, and this signal makes investors to cut the flow of capital
to the industry 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 these companies to grow very
quickly. This growth in turn results into general increase of output in the
economy (Abdullahi, 2005).
Although interest in identifying a formal link between financial
system and economic development is fundamental, the basic intuition behind this
relation is relatively easy to surmise. This is because the main goal of the
capital market is the channelling of funds from the surplus sector unit to the
deficit sector unit of the economy. It
plays a major task in human capital investments which are essential elements of
economic growth and development. From this point of view, one should expect
that as the capital market develops and deepens, then efficient allocation of
the financial resources for the investment is facilitated and thus the frontier
of production possibilities is increased (Adam & Sanni, 2005).
Economic growth in a modern economy hinges on an efficient
financial sector that pools domestic savings and mobilizes foreign capital for
productive investments. Financial markets play an important role in the
mobilization of financial resources for long term investment through financial
intermediation. The financial market,
which comprises the capital and money markets as well as other submarkets,
plays crucial roles in the functioning of any modern economy. However, for the
purpose of this research work emphasis will be on the capital market and its
institutions. The capital market is believed to be an important sector of every
economy whether it is developed or developing because it performs a vital role
in the growth of the economy by providing the avenue through which foreign
investors make investment in the country which boosts the growth of the economy
in terms of foreign Direct Investment (Daniel, 1999).
The capital market mobilizes long-term debt and equity
finance for investments in long-term assets, helps in boosting the financial
system as well as improving the economic growth of a country and supplements
traditional lending activities of the financial institutions such as banks by
providing risk capital (equity) and loan capital (debt). By means of these
instruments, the market is able to mobilize long-term savings and provide
capital to investors for the purpose of financing long-term investments thereby
broadening ownership of productive assets (Daniel, 2004).
Accessing global markets for capital, through a
well-functioning financial system, lessens a country’s reliance on foreign aid
and other forms of external borrowing. It has been pointed out by a number of
financial analysts that financial globalization allows for the sharing of local
security risks. The effect of the capital market performance is determined by
a number of elements, which include how financial assets are priced, such as
the size of the stock market, market capitalization, number of listed equities,
transactions in buying and selling of securities (liquidity) which in this case
refers to the volume of transactions and new issues of securities.
The Nigerian economy is going through a transformation
process, aimed at achieving economic growth and development. The role of the
capital market in this regard cannot be over emphasized for capital factor in
any economic transformation.
1.2 Statement of the problem
Nigerian capital market has undergone a series of reforms all
with the hope of creating a stable economic growth and development. The most
recent reform was carried out in order to provide opportunities for greater
fund mobilization, improved efficiency in resource allocation and provision of
relevant information for appraisal. It is expected that as a result of the
reform the market provides variety of financial instruments capable of enabling
economic agents to pool, price and exchange risk. In spite of these vital roles
that the reform is expected to play, there is however a great concern on the
performance of the Nigerian capital market in relation to the economic growth
and development which when viewed from the nature of activities taking place in
the market appeared superficial. This
may probably be attributed to lack of providing enabling framework that
sustained confidence and investors’ protection and also thorough evaluation of
factors that are of significance relevance in determining capital market
performance.
The Nigeria capital market has grown to being capable of
providing facilities both to the private and public sectors to raise long term
capital used in executing development programmes as well as finance the
expansion and modernization of projects. However, how these reforms have
influenced economic growth over the years has not been fully explored by
previous studies. Based on these
aforementioned, this study is conducted to ascertain the influence of capital
market institutions on economic development in Nigeria.
1.3 Objectives of the Study
The main objective of the study is to examine the impact of
capital market institutions on economic development in Nigeria. However the
specific objectives are to:
1)
Determine the effect of Capital Market performance on
unemployment rate in Nigeria.
2)
Assess the effect of Capital Market performance on poverty
level in Nigeria.
3)
Ascertain the effect of Capital Market performance on the standard
of living in Nigeria.
1.4 Research
Questions
Based on the broad statement of the problem the following
research questions were raised:
i.
To what extent does Capital Market performance affect
unemployment rate in Nigeria?
ii.
What is the effect of Capital Market performance on poverty
level in Nigeria?
iii.
How far has Capital Market performance affected the standard
of living in Nigeria?
1.5 Research Hypotheses
In line with the objectives of the study the following
hypotheses have been formulated in null form:
HO1: Capital Market
performance has no significant effect on unemployment rate in Nigeria.
HO2: There is no significant effect of Capital Market performance on poverty
level in Nigeria.
HO3: There is no significant effect of Capital Market performance on standard
of living in Nigeria.
.1.6 Significance of
the Study
This study on the impact of capital market institutions on the
development of Nigerian economy will be of immense benefit to the following
group of persons:
1)
General
public: It will help
educate the general public on the enormous role capital market performance can
play in improving the standard of living of the people, create job opportunity
for our youth and reduce social vices to the barest minimum through effective
assess of fund from the capital market.
2)
Academic/Future
Researcher: This will serve as a useful guide to research student who
yawns for knowledge to fill in the existing gap in the literature and improve
on their work.
3)
Government
Regulatory Bodies: The study will be of
immense significance to regulatory authorities such as the CBN, NSE and SEC in
coming up with sound financial policies and reforms that will boost the
performance of the capital market. It will help the government to
review some of its policies that are at variance with the development of
capital market to promote enhanced use of the market to finance huge
infrastructural deficit which has become the bane of the nation’s growth.
1.7 Scope of the
Study
The Nigerian
economy is a large component with a lot of diverse and sometimes complex parts.
In this regard the study looks at a particular part of the economy by focusing
particularly on the financial sector. Even then, the study does not cover all
the parts of the financial sector, but focuses only on the capital market and
its activities as such its impact on Nigerian economic growth. The choice of
the period of study, 1999-2018 is predicted on the reasoning that, the market
has experienced remarkable developmental changes as well as improvement in the
policy framework of the market.
1.8 Limitations
of the study
The major challenge faced by the researcher, is in
the area of inconsistency in obtaining data for the study. The researcher
therefore made use of the available data which nevertheless is considered
sufficient to test the hypotheses.
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