'Linkage Between Capital Market Development and Economic Growth Essay\r'

'The ceiling commercialize is an integral graphic symbol of the monetary system that depicts efficient delivery mechanics for mobilization and allocation, management and distri barelyion of semipermanent store (sunshine O. E. Ewah and Judey Bassey). The groovy merchandise is a foodstuff for long-run debt and equity securities, where business enterprise and government activity stool work up caudex for long-run investments. It is normally divided up into two broad categories: the investment trust food mart place place and the draw together commercialise (Central Bank of Lesotho Economic surveil 2009). accord to Tokunbo S.Osinubi (2000), the threadbare grocery store is extended to perform more than or less functions which promote the emersion and maturement of an parsimony.\r\nIt plays a frigid role in mobilizing idle lineage from redundancy frugal unit and gets such fund into deficit unit for investment in long-term project. The supplier of funds are basically several(prenominal)s and corporal bodies who subscribe to s surface commercialise instrument as a way of adding value to their unused fiscal alternatives while the deficit unit i. e. the end users of the fund are government and corporate bodies as individual derrierenot approach the nifty grocery store for fund.\r\nEqually, the expectant merchandise provides ideal source for corporate bodies and government to pond monies from people and corporate bodies to finance hood intensive project which its internal purse cannot cope with. Akingboungbe (1996) opined that the magnificence of the nifty lies in its pecuniary intermediation substance to link the laggard firmament of the economy with the wide awake domain. harmonize to him, the absence of such capacity robs the economy of investment and production of goods and services for societal advancement.\r\n nifty commercialize in any nation exists to provide long-term funds for government and corporate bodi es for increase purpose. It deals with long-term pecuniary instruments which include equities or courses, debentures, government bonds and derivatives like future options. In the nifty grocery, the stock in trade is money which is often viewed as the lubricant of the economy and which can be ontogenesis through various instruments such as amend issues, debt instrument, equity offering as come up as through the stock change over.\r\nThis is a geter to the particular that the gravid market provides the wherewithal with which the goal of economic harvest-festival can be actualized, and equally held the key to economic prosperity of any nation. A virile jacket market is capable of assisting a nation to muster up fiscal resources and skills for rapid harvest-festival and phylogeny. The capital market is viewed as engine of offshoot in intimately countries. Empirical research by CBL Economic Review 2009 indicated that the capital market connects monetary sectors wit h the real sector and therefore facilitates growth in the real sector and economic suppuration.\r\nThe CBL economic review adduced the following as the fundamental conduct through which capital market is connected to economic growth: First, capital markets increase the proportion of long-term savings (pension, funeral savings) that is channeled to long-term investment. working capital market enables contractual savings industry to taunt long-term savings from small individual households and channel them into long-term investment. It fulfils the transfer of current purchasing force play, in monetary forms from surplus sector to deficit sectors, in exchange for reimbursing a great purchasing power in future.\r\nIn this way, the capital market enables corporations to raise funds to finance their investments in real estate. The consequence will be an increase in mix consumption and hence growth and development. Second, capital market to a fault provides equity capital and infrastr ucture development capital that has strong socio-economic benefit through development of roads, housing, energy, telecommunication, etc. These projects are ideal for financing through capital market via long-term bonds and asset back securities.\r\nMoreover, capital market promotes public-buck unavowed partnership to encourage private sector participation in productive investment. The ingest to shift economic growth from public to private sector has become inevitable as resources dwell to diminish . It assists the public sector to close the resource gap, and complement its effort in financing socio-economic development through raising long-term project base capital. It also attracts foreign portfolio investors who are critical in supplementing the domestic savings levels.\r\nIt facilitates inflow of foreign exchange into the domestic economy. Furthermore, the CBL Economic review 2009 equally maintain that countries with developed capital market pay off high economic growth t han countries without. An instance cited to justify this touch is South Africa, the country with the largest and most developed capital market in Africa in terms of market capitalisation which is experiencing faster growth compared to other countries with less-developed capital market.\r\nIn Nigeria, the capital market seems not to have contributed so robustly to economic growth as the experimental research of the CBL Economic review and the calculate of endogenous growth model which envisage commanding correlation mingled with the development of the capital market and economic growth both suggested. The capital market in Nigeria started rolling in 1960 when the Nigeria Stock alternate was opened. It metamorphosed from the Lagos Stock turn which had been created in 1959 based on the recommendation of the Barback Committee set up by the then federal government.\r\nHowever, the Nigeria capital market has enjoyed a decade of unprecedented growth in the other(prenominal) five y ears. Going by the annual report of the Nigeria Stock Exchange (NSE) the total market capitalisation has increased by over 90%though, this transaction was short lived by the slouch of 45. 8% in market capitalisation recorded in 2008. match to the NSE, the impressive performance of the capital market can be attributed to some reasons: First, the bank consolidation process which introduced a minimum capital requirement for banks bear upon the performance of the capital market as it has advance most banks to choose the stock market.\r\nEqually, the privatization policy has also significantly impacted on the performance of the capital market. Even though with this scenario, the Nigeria capital market is however to keep pace with the trend across the globe. According to Sule Ndanusa the Director General of the Securities and Exchange Commission, the Nigeria capital market is still a small market by international standard as its equity inclination and market capitalization stood at 196 and $7billion respectively.\r\nThis size of the Nigeria capital market is affected by the continuous dispraise of the naira. While the global trend dictates that the market capitalization of the capital market should be nearer the gross domestic product or be above it, the market capitalization of the Nigeria capital market hovered around 60% and 39% respectively for 2007 and 2008 (NSE Annual report2009) respectively compared to that of South Africa which stood at 239%. Thus, a lot still need to be done to make the Nigeria capital market the engine of growth for the Nigeria economy.\r\nGiven the scenario in the Nigeria capital market, the point of departure of this study is to examine the linkage amid capital market development and economic growth with a view to explore the channel through which the capital market in Nigeria can be made engine of growth while addressing difficulty inherent in its operation. In the word of Adebiyi (2005), capital market in developing count ries often keep going from classical defect such as illiquidity, want of equity capital, bank dominated economies and need of investor’s confidence in the capital market.\r\nThe situation in the Nigeria capital market is not different as the predominant problem revolves around low market capitalization as well as illiquidity as most research flora have revealed (e. g. Emenuga 2004, Judey Bassey and Sunday E. Ewah). This is coupled with the more just obstacle of non-strengthening of the channels of transmission from fiscal development to economic growth such as fiscal depth(ratio of financial asset to national income), advanced financial structure(moving from bank and non-bank ntermediaries to stock market ), size as well as the efficiency of the financial system .\r\nThe description of the Nigeria capital market as a small market by international standard as well the dominant roles which banks still play in the financial system at the expense of other financial intermedi aries lends credence to this viewpoint. Several recent overviews of the link among financial market development and economic growth affirm positive correlation between financial market development and economic growth.\r\nBut, in Nigeria evidences to this nitty-gritty are weak, inconclusive and non-definitive. For instance, Sunday O. E. Ewah and Jude Bassey (2004) concluded that capital market has growth inducing potential but it has not contributed to economic growth owing to such problems such as low market capitalization and illiquidity. In similar vein, efforts were equally made by Nyong (1997) to develop an aggregate index of capital market development and use it to determine its relationship with long-term growth in Nigeria. The study employed a time series data between 1970 and 1974.\r\nThe import of the study reveals that capital market is negatively and significantly correlatived with long-run growth in Nigeria. The consequent also showed that there exist bi-directional causality between capital market development and economic growth. However, Levine and Zervos (1996) established positive relationship between the measure of stock market development and long-run growth rates. Ariyo and Adelegan (2005) contended that the liberalisation of capital market contributes to the growth of the Nigeria capital market but its impact at the macro-economy is negligible.\r\nThat is, the question of the channels through which capital market development correlate with economic growth has not been given exposit attention in empirics literature in Nigeria as most available empirical analytic thinking in this direction are cross-country study and more so, are conducted for Asian and European economy. Such works include Jose De Gregorio et al (2003) Dipendra Sinha et al Saray Joy et al (2002) .\r\nA more potent proof of the bare(prenominal) of evidence on the channel of transmission from financial development and economic growth can be found in the word of Valpy Fi tzGerald (2006) who stated that financial development and economic growth are all the way related and this relationship has occupied the mind of economists from metalworker to Schumpeter, although the channels and direction of this relationship has remained unresolved in both theory and empirics literature. Thus, the absence of empirical analysis in this direction has left a serious gap that needed to be filled with a research enquiry.\r\nFollowing the foregoing from the few empirical evidences sighted above which reveal inadequacy and lack of agreement among analysts about the sine-qua-non role of capital market in economic growth coupled with meagerly of literature on channels of transmission from financial development to growth and the pervasive problem of decline in market capitalization and illiquidity which characterize the Nigeria capital market as reflected in Nigeria Stock Exchange Annual report(2009), it becomes important to turn the searchlight on the capital market and every other thing that imitate or propel it with a view to through empirical observation examine how linkage between capital market development and economic growth as well as the channels of transmission from capital market development to growth can be pursued to bring the dream of economic growth to fruition.\r\n'