An Analysis on the Growth of the Nigerian Capital Market and Its Effect on Economic Development {a Case of the Nigerian Stock Exchange; 1995 to 2005}

Topics: Stock market, Stock exchange, Investment Pages: 55 (17512 words) Published: February 25, 2011
The importance of a vibrant capital market in the mobilization of long term investable fund for economic development especially for developing countries like Nigeria can not be over emphasized. This research work examines the growth of the Nigerian Stock Exchange (NSE) ; the hub of the Nigerian capital market and it effect on the economic development of Nigeria using time series data from 1995 to 2005. Studies reveal that there have been a remarkable growth in the capital market during the period under study like non-other as far as security issue is concerned in Nigerian. The research findings, found a positive and significant relationship between the value of new issues, rate of returns on securities, the bank recapitalization exercise of 2004/2005 and market capitalization (a proxy of stock market growth). It also found a negative relationship between the level of interest rate (lending) and market capitalization. The number of listed security according to findings is suggested to be insignificant in determining capital market growth. The research findings also reveals that the level of efficiency and effectiveness of the capital market have an impact on economic development. As both the capital market and economic development were found to have a positive relationship. Finally, this study suggest a systematic and conscious effort to be made by the government and the regulatory authorities responsible in overseeing security issues in order to ensure the speedy growth of the capital market and thus providing investable funds that propels economic development


There is no gain saying the fact that economic developing and growth of any nation or state virtually depends on long term development plans. Oftentimes, economic development requires long term plans which needs long term investments. In a developing economy like Nigeria, there has been the need for increased capital resources mobilization to increase savings and thus propel investment which is a motivating factor to rapid economic development and growth.

“A developed financial infrastructure (i.e. financial market) is important for propelling economic development through the mobilization of savings and efficient allocation of these savings for production”. (Samuel, 1999)

The Financial Market is an arrangement or institution which facilitate the exchange of financial assets such as deposits, loans, stocks, bonds, government securities, etc. it operates through brokers, central bank, mortgage houses and some commercial banks. Financial markets generally deal in financial assets and liabilities of various maturities. They also stipulate rules and regulations that must be in place and be well structured to guide the operations of the market. The financial market is essentially segmented into three (3) major areas; The Money Market, The Capital Market and The Insurance Market. Oftentimes, the distinction is always made between the money market and the capital market. While the money market exist mainly to provide short term funds with quick returns, the capital market exist mainly to provide long term funds or financial instruments usually to corporations, industries and governments including their agents whose activities might not be able to withstand the vagaries of the money market. In essence it is the long term end of the financial market. (Sofowora, 2004)
Considering the investment options opened to investors, a vast majority of Nigerian investors with risk averting characteristics, prefer to invest in short term risk free securities than the long term security investment in which the stock exchange is concerned. Still visible evidences of tremendous growth are being recorded in the stock market. The factors behind the persistence growth over the years is worth investigating, even with some problems still abounding in this sector , how to manage and improve the geometric growth is essential...
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