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THE
IMPACT OF THE CAPITAL MARKET ON THE ECONOMIC GROWTH IN NIGERIA
(1988-2011)
Table of Contents
CHAPTER ONE
Introduction
1.1 Background
of
study
1.2 Statement of the
problem
1.3 Objectives of the
study
1.4 Significance of
the Study
1.6 Research Question
1.5 Research
Hypothesis
1.6 Scope and
Limitations of the
study
1.7 Definition of
Terms
References
CHAPTER TWO
2.1 Theoretical
Framework of the
study
2.2 Empirical
Literature
References
CHAPTER THREE
3.1 Research
Design
3.2 Area of
Study
3.3 Model
Specification
3.4 Method of
Evaluation / Analysis
3.5 Decision
Rule
Reference
CHAPTRE FOUR
Presentation and
Analysis of Results
4.1 Data
Analysis
4.1
Evaluation of Workings Hypothesis
4.3
Policy implication of the Result
CHAPTER FIVE
FINDINGS,
IMPLICATION, RECOMMENDATIONS,
CONCLUSION,
LIMITATIONS
5.1 Summary of
Findings
5.2
Conclusion
5.3
Recommendations
Bibliography
Appendix
CHAPTER ONE
INTRODUCTION
1.1
Background of Study
The capital market is a highly
specialized and organized financial market and indeed essential agent of
economic growth and development because of its ability to facilitate and
mobilize saving and investment. To a great extent, the positive relationship
between capital accumulation and real economic growth has long been affirmed in
economic theories (Anyanwu, 1996). Success in capital accumulation and
mobilization for development varies among nations, but it is largely dependent
on domestic savings and inflows of foreign capital. 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.
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.
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.
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 market.
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.
Undoubtedly,
potential invisible funds abound in Nigeria, but the overriding consideration
in this project will be to examine the role of the capital market in harnessing
and mobilizing these resources (invisible funds) to generate economic growth in
the country and consequently, economic development.
1.2
Statement of the Problem
There is abundant evidence that most
Nigerian businesses lack long-term capital. 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 1996).
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 empirically
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.
1.3
Objectives 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 market;
3. To examine the rate at which new stocks are issued on the capital
2. To examine the operations of the Nigerian capital market;
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.
1.4
Research Questions
This research shall
be guided by the following research questions:
1. How does the capital market impact on the economic growth and
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 Market?
3. What is rate at which new stocks are issued on the Nigerian capital
2. What is the trend of trading activities on the Capital Market?
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
4. How could the capital market through its crucial role stimulate
economic growth in
Nigeria?
1.5
Research of Hypothesis
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
H0: That the capital market operations have not contributed to Nigerian
economic growth.
H0: That the capital market operations
have contributed to Nigerian
economic growth.
1.6
Scope 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 2011 due to the non-availability of some important
data.
1.7
Significance 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.
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