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The Capital Market Contributions Towards Economic Growth

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This is very essential for government and other institutions in need of long-term funds and for suppliers of long-term funds. (Know, 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 (Away, The Capital Market Contributions Towards Economic Growth and Development By sockeyes contributes to the socio-economic growth and development of emerging and developed economies. (Donna and Dodd, 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 (FED), 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. Ladino, 2010). *Corresponding Author's E-mail: okoyevictor26@yahoo. Com Kooky and Noisiness, 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 f 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 economy. It is critical in the manipulation of savings to profitable agglutinating investment. It not only provides the funds required for investments but also efficiently allocates these funds to projects of best returns to fund owners (Donna and Dodd, 2010).

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AY-Fake (2006) defines the capital market as a network of specialized financial institutions, series of mechanisms, processes and infrastructure that, in various ways, facilitate the bringing together of suppliers and users of medium to long term capital for investment in socio-economic developmental projects. Among (1997) viewed the capital market as a complex institution characterized with inherent mechanism through which long term funds of the major sectors of the economy comprising households, firms and government are embroiled, harnessed and made available to various sectors of the economy.

Dada (2003) defined the capital market as an institution that exists to provide long term capital both to government and corporate bodies for industrial, socioeconomic and infrastructural development purpose. The Nigerian capital market The Nigerian Capital market came into existence in 1960 under the nomenclature of Lagos Stock exchange and came to be known as the Nigerian Stock Exchange in December 1977. It began operations in 1961 with 19 securities listed for trading. Branches were opened in major cities of the country. There are now thirteen branches of The Nigerian Stock Exchange excluding the head office in Lagos.

Each branch has an electronic trading floor. The head office in Lagos was opened in 1961; Sudan (1978), Port Harcourt (1980), Kane (1989), Anoints (February 1990), Abidjan (August 1990), Baja (October 1999), Yolk (April 2002), Benign (January 2005), I-JOY (2007), Loon (2008), Absolute (2008), renown (October 2009)and Bausch (2009). The NOSE continues to evolve to meet the needs of its valued customers, 258 Securities listed, The Exchange operates fair, orderly and transparent markets that bring together the best of African enterprises and the local and global investor communities.

The Nigerian Stock Exchange is poised to Hampton the acceleration of Africans economic development and to become "the Gateway to African Markets" (Wisped). Overview of empirical evidences The linkage between stock market and economic growth has occupied a central position in the development literature (Sousing, 1998). There have been growing concerns and controversies on the role of the stock market on economic growth and development. While some posits a positive link, others maintain a negative one and others still, does not find any evidence at all.

These controversies only beg for more research and indents study on the matter. Sousing (1998) employed the neoclassical growth model with a time series data on all variables (ones he used) of GAP which was subjected to Augmented Dickey-Fuller unit Root Test and which pned from 1980 to 2000 to come to the conclusion that a positive relationship exists between the economic growth and the measures of stock market development used. He however, pointed out that the relationships are statistically insignificant which goes further to show that the effect of stock market on economic growth is weak and insignificant.

In examining whether a strong empirical association exists between the stock market placement and longhorn economic growth, Levine and Servos (1996) used pooled cross-country time series regression of forty-one countries from 1976 to 1993. The growth rate of Gross Domestic Product per capita was regressed on a variety of variables designed to control for initial conditions, political stability, and investment in human capital and macroeconomic conditions. Conglomerated index of stock market development was also included.

A strong correlation was discovered to exist which implied a positive relationship between stock market development and economic growth. Spark (2010) analyses the capital market performance and the Roth of the Nigerian economy. A co-integration approach was used for the analysis of data. He used the real gross domestic product (as a proxy for development indicator) on the market capitalization, new issues, value of shares traded and turnover ratio as capital market indicators. It showed a long run relationship between the growth of GAP and the capital market indicators.

Among (1997) developed an aggregate index of capital market development and used it to determine its relationship with long-run economic growth in Nigeria. The study , which employed a time series data from 1970 to 1994, used four measures of capital market 22. Glob. DVD. Rest. J. Manage. Bus. Stud. Development; ratio of market capitalization to GAP (in %), ratio of total value of transaction on the main stock exchange to GAP (in %), the value of equities transactions relative to GAP and listing. These measures were combined into one overall composite index of capital market development using principle component analysis.

A very negative and significant correlation between capital market development and the long run growth in Nigeria was posited as the result of this growth of Nigeria, using a time series data from 1961 to 2004, Away et al (2009) found UT that though the Nigerian capital market has the potential of growth inducing, there has not been any meaningful contribution to the economic growth of Nigeria. This, they said, was due to low market capitalization, low absorptive capitalization, liquidity, misappropriation of funds etc. Harris (1997) did not find hard evidence that stock market activity affects the level of economic growth.

The capital market and economic growth: theory A number of economists have maintained that the capital market has little or nothing to offer to real economic activity (Stilling, 1989; Mayer, 989; Harris and Arrival, 1991). Baker and Harvey (1997) have a different opinion. They outlined what an efficient capital market would mean for an economy and a country at large. Ability to Diversify: Investors would have means to diversify their portfolios. Individuals can diversify oversimplifies risks, thus making investment in firms more attractive.

This is possible in an efficient market. Change of Ownership: managers are disciplined indirectly through this means. Non-competent managers make stock prices to decline below the potential value of the assets. Efficiently, these managers are removed and replaced with one that can increase the value of the assets. Managers with productivity-decreasing actions are weeded out. Innovation: An efficient capital market affects entrepreneurs in whole positive dimension. Entrepreneurs considers, not only profits generated in a new venture to the public.

This provides long term productivity for the economy. Applecart (2004) highlighted areas where the capital market makes input as to developing and growing the economy; Private Sector Development: The prospects for private sector growth in developing economies are being influenced by the access to and ease in movement f financial resources. Economic growth entails amongst other things, the extent at which existing firms can borrow and grow, the ability of emerging firms to act entrepreneurial, their willingness to invest in assets and the ability to allocate their assets freely.

Liquidity: liquidity has a proven relationship with economic growth. Liquidity is generated by the increase in the number of firms and investors participating in the market. Countries with liquid market experience faster rates of capital accumulation and greater productivity gains (Levin 1996). Firms are willing to make permanent investments critical to development since they are assured of being able to exit from longer-term investment. Local consumers are more willing to immobile domestic savings.

More resources are more efficiently distributed to the more productive and innovative firms since this process allows for a market based system of allocating financial resources. Increase in Remittances: establishing mechanism for facilitating cost-effective transfer and savings of funds received through remittances - a rapidly emerging source of private capital in developing countries - can also contribute to economic growth. Remittances offer a promising and stable potential for increasing domestic savings and fostering domestic investment.

Corporate Governance: The creation of a legal and regulatory framework incorporating increased transparency and information dissemination is necessitated. Corporate governance is heightened, transparency improved and investors' confidence is boosted. Studies have shown a industry efficiency. Industry efficiency promotes economic growth. Donna and Dodd (2010) also enumerated roles the capital market play in the development of the economy; - Creates avenues for marketing shares and other securities in order to ease fresh funds for expansion of operations leading to increase in output / production. The capital market aids the government in its appropriation programmer by offering her shares in the public enterprises to members of the public through the stock exchange. - Foreign capital inflow is encouraged when foreign companies or investors invest in domestic securities. - It reduces the over reliance of the corporate sector on short term financing for long term projects and also provides opportunities for government to finance aimed at providing essential amenities for socio-economic development.

Capital market and the real sector Via (2008) earmarked the following subsection of the economy to be under the real sector; Agriculture, Manufacturing, Mining, Quarrying and Real estate / construction The real sector of the economy, is said to, in more ways than one, contribute uniquely and major to employment generation, poverty alleviation, FED attraction, enhanced force earnings and more rapid economic advancement. Kooky and Noisiness, 123 In the bid to seriously finance the real sector of the Nigerian economy, various economic policies have been implemented by various administrations.

However, the capital market has remained a convenient and more affordable source of long term funding (Via, 2008). Ordinarily, the need for long term finance makes the capital market relevant to our development drive (Baddie and Demeaned, 2010). In recent times, firms in Nigeria have actively utilized the NOSE to raise funds for business expansion. In 2007, a third tier market was introduced by the NOSE which in effect, has small and medium enterprises more opportunity to raise funds. Some real sector operators are already taking advantage of this opportunity. Foreign direct investment

The mechanism through which FED (Foreign Direct Investment) impacts on the economy is the capital market. FED has become very crucial to both developed industrial and developing economies. FED introduces foreign capital and skilled labor into an economy through the capital market. It also brings in technological know-how, raises efficiency and competitiveness, enhances export earnings and improves international marketing activities. FED is used as a control variable in the capital market since it is presumed that FED is a determinant of economic growth (Augural and Mohammad, 2004).

Consequently, host country governments ensure that enabling environment for foreign investment is created (Non and Injunction, 2010). Nigeria has initiated economic reforms aimed at increasing the role of the private sector and creating an enabling environment for FED. Negative effects, which FED could impose on the country, as observed by Armed (2003), are being minimized. Foreign firms can raise the level of capital formation, promote exports and generate foreign exchange.

They can provide the much needed market for domestic supplier and support industries and in the process, transfer technology, increase industrial engages and stimulate industry as a whole while providing direct and indirect investment raises a country rate of output growth by raising total factor productivity. FED has brought tremendous growth to the capital market and one of the evidences that an economy is growing is that the capital market is growing and till now, this is the Nigerian experience (Baddie and Demeaned, 2010).

METHODOLOGY publications etc. The data collected were capital market variables like Gross Domestic Products, Market Capitalization, All Share Index, Market Volume and Market Turnover. Model Specifications This study made use of multiple regression in estimating the relationship between indices of capital market operations and Nigerian economic growth. The Ordinary Least Square (OILS) technique was employed in obtaining the numerical estimates of the coefficients in the model formulated below.

Issues like economic growth in relation to capital market performance could be based on economic variables such as Gross Domestic Product (GAP) and capital market activities (Spark, 2010). This stems from the fact that economic growth has been defined as the ability of the economy to increase production of goods and services reduced in the economy. The GAP being the market value of goods and services produced in the economy over a period of one year should therefore have a link to the capital market activities.

Therefore, the multiple linear regression analysis was used with the GAP as the dependent variable which will be regressed against explanatory or independent variables like All Share Index, Market Value and Market Capitalization. The model, this paper used for this purpose is stated as follows; GAP = bob + blast + bomb + bomb + Ii where GAP = Gross Domestic Product, AS = All Share Index, NV = Market Value, MAC = Market Capitalization. U is the stochastic disturbance term and I the tit observation since the data is time serial.

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