Impact of capital market on Nigerian economy, 1981 - 2014

This study examined the impact of the capital market on Nigerian economy. Time series data were collected on Real Gross Domestic Product, Market Capitalization, All Share Index and Turnover Ratio from 1981 - 2014.
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Impact of capital market on Nigerian economy, 1981 - 2014 International Journal of Management (IJM) Volume 8, Issue 3, May–June 2017, pp.134–142, Article ID: IJM_08_03_014 Available online at http://www.iaeme.com/ijm/issues.asp?JType=IJM&VType=8&IType=3 Journal Impact Factor (2016): 8.1920 (Calculated by GISI) www.jifactor.com ISSN Print: 0976-6502 and ISSN Online: 0976-6510 © IAEME Publication IMPACT OF CAPITAL MARKET ON NIGERIAN ECONOMY, 1981 - 2014 Ugwuanyi, Charles Uche (Ph.D) Department Of Economics, Michael Okpara University Of Agriculture, Umudike, Abia State, Nigeria ABSTRACT This study examined the impact of the capital market on Nigerian economy. Time series data were collected on Real Gross Domestic Product, Market Capitalization, All Share Index and Turnover Ratio from 1981 - 2014. The study employed Unit root, Cointegration and Granger Causality Tests as well as Ordinary Least Square method in the empirical analysis. The unit root tests show that the variables were not stationary at level but all became stationary at first difference. They were said to be integrated of the order one, 1(1) at first difference. The Cointegration Test revealed that all the variables were cointegrated, showing a long-run equilibrium relationship between capital market and Nigerian economy. The Granger Causality Test shows a unidirectional causality between the variables in the model. The OLS result indicates that the coefficient of determination, i.e. the R-squared has a value of 0.988849. This implies that 98 percent changes in the Real Gross Domestic Product of Nigeria could be attributed to the independent variables. The MCAP & TURNR have coefficient values of 0.899656 and 0.375083 with t-statistic of 14.60231 and 2.879237 respectively. The All Share Index (ASHI) has negative coefficient value of -0.265177 and t-statistic value of -5.667988. The implication of these findings is that the capital market in Nigeria appears not to be contributing enough to the economy as ASHI seen in economic literature as a better stock market indicator than MCAP and TURNR has negative impact on the economy. The findings support the Efficient Market Hypothesis. The study recommend improved information on past performances of companies, equity returns, equity prices, and stock/company listing to avoid unreasonable speculation by investors in financial assets. It will improve the performance of capital market in Nigeria. Key words: Capital Market, Nigerian Economy, Efficient Market Hypothesis, Equity returns, financial assets. Cite this Article: Ugwuanyi, Charles Uche (Ph.D), Impact of Capital Market on Nigerian Economy, 1981-2014. International Journal of Management, 8 (3), 2017, pp. 134–142. http://www.iaeme.com/IJM/issues.asp?JType=IJM&VType=8&IType=3 http://www.iaeme.com/IJM/index.asp 134 editor@iaeme.com Impact of Capital Market on Nigerian Economy, 1981-2014 1. INTRODUCTION The perception of the economic policy in Nigeria and elsewhere is that the capital market is a driver or lubricant that keeps turning the wheel of the economy to growth and development because of its imperative functions of not just mobilizing long term funds and channeling them to productive investment but also efficiently allocating these funds to projects that make best returns to fund owners [1], [2], [3], [4], and [5]. Today, the activities and performance of capital market in Nigeria have much wider implications and these arise partly because of the growing influence of ideas and structure associated with the concept of democracy. The capital market has been identified as an institution that contributes to the socio-economic growth and development of emerging and developed economies. These are made possible through some of the vital roles it plays, such as channeling resources, promoting reforms to modernize the financial sector, financial intermediation capacity to link deficit to the surplus sector of the economy and as a veritable tool in the mobilization and allocation of savings among competitive uses which are critical to the growth and efficiency of the economy [6]. [7], argues that a nation requires a lot of local and foreign investments to attain sustainable economic growth and development. [8], states that 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. However, the paucity of long-term capital has posed the greatest predicament to economic growth and development in Nigeria. Therefore, using the cointegration test, Granger causality test and Ordinary Least Square analysis we studied the interaction of capital market variables in increasing economic growth in Nigeria. This is very important because share index and other variables determine the investors’ response in capital market. The purpose of this article is to identify the long-run effect of All Share Index, Market Capitalization and Turnover ratio on Nigerian economy. The article is organized as follows: Section one introduces the study while section two reviews the related literatures. Section three highlights the methodology employed in the study and the sources of data. Section four presents and discusses the empirical results. Lastly, section five provides the conclusions and policy implications. 2. LITERATURE REVIEW The Nigerian economy has over the years been subjected to series of social, political and economic policies and reforms. T ...