IMPACT OF THE CAPITAL MARKET ON REAL SECTOR OF THE NIGERIAN ECONOMY (1987-2010)

ABSTRACT
The issue of whether capital market development has any direct impact on economic growth
has/is still been debated in academic literature. Earlier research in this area of finance had
emphasized the role of the banking sector in economic growth; however, the recent surge in
capital markets activities with emerging markets like Nigeria accounting for a large amount of

this boom has led to focus on the linkage between capital markets development and economic
growth especially on its impact on the real sectors of these economies. The real sector of an
economy is where goods and services are produced through the combined utilization of raw
materials and other productive factors such as labour, land and capital and it comprises the
agricultural, industrial, building and construction, and services sector of an economy. In Nigeria,
despite the opportunities which the capital market provides through the provision of surplus
funds, the growth of the real sector of the Nigerian economy has remained stunted. Problems
such as the inaccessibility of funds by real sector firms from the capital market due to stringent
listing requirements and conditionalities, lack of depth and breadth of the capital market to cater
for the need of real sector firms among other challenges, have been attributed as major factors
inhibiting the growth of the real sector of the Nigerian economy. It is against this background
therefore, that this study sought to appraise and analyze the impact of the new issues market,
market capitalization, turnover ratio and value of share traded ratio of the Nigerian capital
market on real sector of the Nigerian economy.

The study adopted the ex-post facto research
design and annualized cross-sectional data for a 24-year period, 1987-2010, were collated from
the Nigerian Stock Exchange Fact Books for the period. Four hypotheses were proposed and
tested and descriptive statistics and graphs were also used to complement the regression results.
The results from this study found that the new issues market of the Nigerian capital market has a
positive and significant impact on agricultural output (coefficient of NIR = 0.04, t-value = 5.13;
p = 0.00 < 0.05) but negative and significant on industrial output (coefficient of NIR = -0.05, tvalue
= -5.03; p = 0.00 < 0.05). Market capitalization has positive and significant impact on
agricultural output (coefficient of Mcap = 0.01, t-value = 3.96; p = 0.00 < 0.05) but had negative
and significant impact on industrial output (coefficient of Mcap = -0.01, t-value = -6.98; p = 0.00
< 0.05). Turnover ratio of the Nigerian capital market had positive and significant impact on
agricultural output (coefficient of TVR = 0.68, t-value = 7.07; p = 0.00 < 0.05) but negative and
significant impact on industrial output (coefficient of TVR = -0.59, t-value = -4.47; p = 0.00 <
0.05). And value of share traded ratio of the Nigerian capital market had positive and significant
impact on agricultural output (coefficient of VSTR = 0.058, t-value = 5.55; p = 0.00 < 0.05) but
negative and significant impact on industrial output (coefficient of VSTR = -0.0619, t-value = -
5.77; p = 0.00 < 0.05). The study, therefore, amongst others recommends that policies that will
impact positively on the real sector, especially the agricultural and manufacturing subsectors of
the Nigerian economy where it concerns funding, should be pursued with all the seriousness it
deserves if Nigeria is to achieve her desire to be one of the top twenty economies in the world by
the year 2020. Therefore, this study contributed, empirically to provide evidence on the impact
of the capital market on the real sector of the Nigerian economy.

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