A CRITICAL APPRAISAL OF THE IMPORTANCE OF CAPITAL MARKET IN THE DEVELOPMENT OF THE NIGERIAN ECONOMY

Abstract

 This article is centered on the role of the Nigeria capital and economic development. The capital market is primarily established to boast the industrial growth and economic development of Nigeria economy by mobilizing long-term funds and capital formation for investment and productive purposes. Using time series data from 1971-2010 and applying the Engle-Granger and Johansen method of co-integration in a VECM setting estimation technique. The results revealed that in the long run, the Nigerian capital market positively and significantly influence economic development. We therefore recommend that government should put more effort in developing an active new issues market by encouraging more floatation of new issues and create stable environment for business. Keywords: capital market, economic development, Causality Tests 1. Introduction Over the years economic transformation has been the borne of contention in the Nigerian economic policy and reform programme. This meticulous sojourn into the realm of rapid economic advancement induced the establishment of the Nigerian capital market in 1960 to assist in the area of long-term funds mobilization, capital formation and optimal allocation of resources for investment and productive purposes aim at responding to the socio-economic development need of the nation. Indeed, the primary aim of the Nigerian capital market is to mobilize long-term funds for investment as well as stimulating industrial and economic development of the nation, but the market has suffered some serious bans which make the aim almost unattainable despite all the reforms and effort put in place by the Government to revitalize the market and make it more efficient. These bans have served as chronic problems inhibiting the Nigerian capital market development and performance. The objective of the paper is to critically evaluate the contribution of the Nigerian capital market to the development of the Nigerian economy. However, the importance of this research work cannot be over-emphasized. This is in view of the fact that capital market is an indispensable tool for enhancing productivity, investment activities and stimulating rapid industrial as well as economic development. There is an argument that most industrialized countries of the world would not have recorded reasonable socio-economic progress without developing viable and efficient capital market capable of promoting and mobilization of long-term funds for investment purposes and optimal allocation of resources that ensure sustainable economic development. The most important role of the Nigerian Capital Market is the mobilization and efficient allocation of capital for investment purposes.    The market puts in place structures for the mobilization of savings from numerous surplus economic units for the purposes of the productive process and thus enhances economic growth and development.  However, because of certain problems inherent in or affecting the market, the performance of the capital market has always been questioned. Some of these problems include stringent listing conditions especially in the first and second tier markets. There is also lack of awareness by the investing public, leading to low activity and insufficient funds in the market arising from the buy and hold attitude of majority of investors. Other problems are poor economic conditions making companies not to perform well in terms of product availability and dividend payment. This further leads to loss of confidence by investors in the institutions operating in the market and divestment of funds to some other areas outside the capital market, where appropriate returns are envisaged. In doing this, the investors shy away from investment in the capital market resulting in the reductions of securities traded in the market. Since the amount of securities traded could determine the amount of funds mobilized, a reduction in securities traded thus creates insufficient funds. This affects the economic growth and development in the country