The Capital Market Contributions Towards Economic Growth and Development

Topics: Economics, Investment, Economic growth Pages: 9 (2929 words) Published: June 20, 2013
Global Advanced Research Journal of Management and Business Studies (ISSN: 2315-5086) Vol. 2(2) pp. 120-125, February, 2013 Available online http://garj.org/garjmbs/index.htm Copyright © 2013 Global Advanced Research Journals

Full Length Research Paper

The capital market contributions towards economic growth and development; the Nigerian experience Okoye Victor O1* and Nwisienyi Kenechukwu J2
2

Director Consultancy Unit, Federal Polytechnic Oko, Anambra State, Nigeria Department of Banking and Finance, Federal Polytechnic, Oko, Anambra State, Nigeria Accepted 05 February 2013

1

This study examined the impact the capital market has on the Nigerian economy, using time series data for 10-year period; 2000 – 2010. The model specification for the analysis of data is multiple regression and ordinary least squares estimation techniques. The gross domestic product was adopted as the dependent variable while the all-share index, market value and market capitalisation were the independent variables. The result showed that there are significant relationship between share index, market value and market capitalisation on GDP. This implies that the GDP is affected by the movement of the capital market’s share index, market value and market capitalisation. In other words, the capital market has impacted significantly on the economy for the years under review. Keywords: Capital Market, economy, analysis, Nigeria INTRODUCTION The growth and development of an economy, depends greatly on how the country’s capital market thrives. The capital market can be an important facilitator of economic growth (Applegarth, 2004). Osaze (2000) is of the view that the capital market drives any economy to growth and development because the long term growth capital formation stems from it. Economic growth in a modern economy hinges on an efficient financial sector that pools domestic savings and mobilizes foreign capital for productive investments. (Bekaert and Harvey, 1997). Capital market offers access to a variety of financial instruments that enable economic agents to pool, price and exchange risk. Through assets with attractive yields, liquidity and risk characteristics, it encourages savings in financial form. This is very essential for government and other institutions in need of long-term funds and for suppliers of long-term funds. (Nwankwo, 1991). Based on its importance in accelerating economic growth and development, government of most nations tend to have keen interest in the performance of its capital market (Ewah, Esang and Bassey, 2009). The capital market has been identified as an institution that contributes to the socio-economic growth and development of emerging and developed economies. (Donwa and Odia, 2010). Generally speaking, the importance of the capital market to any economy (developed or emerging) cannot be swept under the carpet. A direct linkage has been discovered to exist between the capital market of a nation and its economic growth. Linkages were also found to exist between foreign direct investment (FDI), stability of capital market (which will indicate stability in the economy), sources of finance for economic development, investment avenue for surplus fund etc and the capital market. (Oladipupo, 2010).

*Corresponding Author’s E-mail: okoyevictor26@yahoo.com

Okoye and Nwisienyi, 121

The concept of capital market The capital market can be seen as any mechanism organized for trading financial assets or liabilities. Financial assets will include all forms of securities ranging from common stocks to derivatives. The primary function of the capital market is to enable funds to be effectively allocated from the surplus units in the economy to the deficit units for productive investments. Indeed, with such mechanism, corporate financial managers have access to a wide range of sources of finance and instruments. The Nigerian capital market provides the necessary lubricant that keeps turning the wheel of the...
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