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Capital is the second most important factor of production after the entrepreneur, hence the study of the role of Capital Market in the economic development of Nigeria, since the capital market is the only channel through which large and long term funds can be mobilized for any meaningful economic development. The research is basically to establish role played by the capital market and wages of enhancing some in an attempt to achieve the ultimate objective of economic development in Nigeria. This study attempts to examine the roles of the Nigerian stock exchange in the growth and development of the Nigerian economy. The Nigerian stock exchange inspite of its development and nature and other limiting factors has contributed immensely in the development of the economy. Based on the data collected and tested hypothesis using the person product moment correlation. The result shows that there is a significant relationship between the market capitalization of the Nigerian stock exchange and gross domestic product on one hand, and no significant relationship between the size of the Nigerian stock exchange and the industrial production (growth rate). Reasons and recommendation were made to strengthen the roles of the Nigerian stock exchange with the aim of marketing it relevant and effective development of the Nigerian economy.








Table of contents


  • Background of the study


  • Statement of the problem


  • Objectives of the study


  • Research Questions


  • Research Hypothesis


  • Delimitations of the study


  • Significance of the study


  • Operational Definitions of terms



2.1     Conceptual framework of capital market

2.2     Theoretical framework

2.2.1  The roles of the Nigerian capital market pooling function Facilitating capital function Risk Reduction Function

2.3     Empirical Framework

2.3.1  The Nigerian stock exchange market

2.3.2  The Nigerian stock exchange in perspective

2.3.3  Dealings in the Nigerian Stock Exchange

2.4     The Central Securities Clearing System (CSCS)

2.5     The Securities and Exchange Commission (SEC)

2.6     Summary of Literature Review

2.6.1  Nigerian Stock Exchange and economic development

2.6.2  Membership of the Nigerian stock exchange

2.6.3  Functions and importance of the Nigerian stock exchange

2.6.4  Problems associated with the exchange


3.1     Research Design

3.2     Population of the study

3.3     Sample and Sampling technique

3.4     Sources of Data collection

3.5     Validity of Research Instrument

3.6     Methods of Data Analysis


4.1     Introduction

4.2     Data Presentation

4.3     Analysis of interview

4.4     Discussion of Results findings

4.5     Testing Hypothesis



5.1     Summary of findings

5.2     Conclusion

5.3     Recommendations


Appendix I

Appendix II (Questionnaire)




Capital Market is an engine of economic growth and development globally. The capital market is a highly specialized and organised financial market and indeed an essential agent of economic growth and development (Odetayo and Sajuyigbe 2012).

(Okoye and Nwisienyi, 2013), because of its ability to facilitate and mobilize savings and investment. The Nigerian Capital market played an indispensable role in Nigeria’s economy by providing funds for the investors without inconveniencing the companies. Today, the activities and performance of Capital Market in Nigeria have much wider implication and this arises partly because of the growing influence of ideas and structure associated with the concept of democracy.

Shailu (2014), describes the Capital Market as a market where borrowing and lending of long term funds take place involving both debt and equity like shares, debentures, bonds etc. she points that capital market plays a very important role in promoting economic growth through the mobilization of long-term savings and the savings get invested in the economy for productive purpose.

Adeusi, etal. (2013), Opined that Capital Market is a driver or lubricant that keep turning the wheel of the economy to growth and development because of its imperative function of not just mobilizing long term funds and channeling them to productive investment but also efficiently allocating these funds to projects best returns to fund owners.

The Capital market institution is critical to the economic growth of any nation. The capital market is 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 development projects (Al-Faki, 2006).

The Capital market is subdivided into the primary and the secondary market.

The Primary market or the new issues market provides the avenue through which government and corporate bodies raise fresh funds through the issuance of securities which is subscribed to by the public or a selected group of investors.

The Secondary market provides an avenue for sale and purchase of existing securities, Sule and Momoh (2009), found that the secondary market activities have impacted more on Nigeria per capital income by tending to grow stock market earnings through wealth than the primary market.

Aremu etal. (2011), and Donwa (2011), argued that the capital market has been identified as an institution which contributes to the socio-economic growth and development of emerging and developed economies. This is made possible by the intermediary role played by the capital market in mobilizing funds from surplus units to deficit units to be invested into projects with positive Net Present Value (NPV) which may enhance economic growth of the nation.

The institutional frameworks through which the Capital market functions in Nigeria include; the Nigerian Securities and Exchange Commission (NSEC), the Nigerian Stock Exchange (NSE), Stock Brokers and investors. The main objective of establishing the Nigeria capital market is to mobilize savings from numerous economic units for economic growth and development, provide adequate liquidity to investors, broaden the ownership base of assets as well as the creation of a buoyant private sector, provide alternative source of funds for government, others are to encourage more efficient allocation of a given amount of tangible wealth through changes in the composition and ownership of wealth, create a built-in efficiency in the operations and allocation in the financial system to ensure optimal utilization of resources, and promote rapid capital formation.

The development of capital market in Nigeria, as in other developing countries has been induced by the government. Through prior to the establishment of stock market in Nigeria, there existed some less formal market arrangements for the operation of capital market.

It was not prominent until the visit of Mr. J.B. Lobynesian in 1959, on the invitation of the Federal government, to advice on the role the Central Bank could play in the development of local money and capital market. As a follow-up to this, the government commissioned and set up the Barback committee to study and make recommendations on the ways and means of establishing a stock market in Nigeria as a formal capital market.

Acting on the recommendations of the committee, the Lagos Stock Exchange (as it was called then) was set-up in March 1960, and in September 1961, it was incorporated under section 2 cap 37, through the collaborative effort of Central Bank of Nigeria, the business community and Industrial Development Bank (Alile & Anao 1990).

With the establishment of the Central bank of Nigeria in 1959 and the coming into existence of the Lagos Stock Exchange in 1961 and subsequently, the Nigerian Stock Exchange by an Act in 1979, a sound foundation was laid for the operation of the Nigerian Capital Market for trading in securities of long term nature needed for the financing of the industrial sector and the economy at large.

After the incorporation of the Lagos Stock Exchange, it was granted further protection under the law and its activities was placed under some sort of control by the government, hence the passing of the Lagos Stock Exchange Act. However, the Lagos stock exchange market was advocated.

The review was carried out to take care of the low capital formation, the huge amount of currency in circulation which was held outside the banking system, the unsatisfactory demarcation between the operation of Commercial banks and the emerging class of the Merchant Banks, and the extremely shallow dept of the capital.

In response to the problems mentioned above, the government accepted the principle of decentralization but opted for a National Stock Exchange, which will have branches in different parts of the country. On December 2nd 1977, the memorandum and article of association creating the Lagos Stock Exchange was transformed into the Nigerian Stock Exchange, with branches in Lagos, Kaduna, Benin, Port-Harcourt, Yola, Kano, Onitsha, Ibadan, Uyo, Ilorin and the Federal Capital Territory (FCT) Abuja.

The Nigerian Stock Exchange is a private, non-profit making organization Limited by Guarantee.

Akeni (2007), stated that a stock exchange is an organised auction market with physical location and facilities for trading in stocks and shares through professional intermediaries known as stock brokers.

Ajayi (2005), treated it as market for the sales and purchases of corporate and treasury securities.

It was incorporated via the inspiration and support of businessmen and the Federal Government through the CBN, owned by about 300 members. The membership includes Financial institutions, Stock brokers and Individual Nigerian of high integrity who have contributed to the development of the stock market and the Nigerian economy.

The Council members (Board of Directors) of the stock exchange are elected at a piece general meeting by members of the exchange. The tenure of the Presidency is limited to one three-year term. The council is responsible for policy-making, but the Director General (formerly Prof. Ndi Okereke Onyuike, Emmanuel Ikhazobor) and presently at the time of this research, Dr. Oscar Onyema and his team of executives administer the day-to-day affairs of the exchange. The council members, management and staff of the Nigerian stock exchange as well as stockbrokers are subject to a stringent regime of codes of conduct, which calls for a higher degree of integrity, discipline, skill and high sense of patriotism.

Dealings members of the stock exchange are the stock broking firms licensed by the exchange to purchase and sell shares on behalf of the investing public. There are over 200 of them at the moment. The exchange is a Self-Regulatory Organization (SRO), making and enforcing rules for its members.


Despite the popular belief that democracy promotes economic activities which in turn engenders economic growth, the growth of the capital market in Nigeria is still very small in relation to the size of the economy.

CBN (2007), has it that a comparative analysis of the equity market capitalization of the Nigerian Capital Market with some countries in North and South America, Asia, Europe and Africa shows that the Nigeria market is relatively very small.

There is abundant evidence that most Nigerian businesses lack long-term capital. The business sector has depended mainly on short-term financing such as overdrafts to finance even long-term capital. Based on the maturity matching concept, such financing is risky. All such firms need to raise an appropriate mix of short and long-term capital (Demirgua-Kunt & Levine 1996).

Most recent literatures on the Nigeria Capital Market have recognized the tremendous performance the market has recorded in recent times. But the performance of the capital market especially the Nigerian stock market was overcast in 2009 by the global financial and economic crisis with the exorbitant lending rate mounting pressure on the stock market as a result of massive borrowed funds in the market. The rush by stock investors to liquidate the investment to repay their loans in other to avoid the excessive lending rate caused the Nigeria stock market to crash.

However, Sere-Ejembi (2008), argued that it was not the global financial crisis and the speculative subprime mortgage bubbles and bust alone that was responsible for the crash of the stock market, other contributory factors lent support. Some of these included; margin lending by the Deposit Money Banks (DMBs), stock price appreciation that had no correlation with the fundamentals in the quoting companies and local investors opting to invest in foreign capital markets to take advantage of the low stock prices.

This study is undertaken to examine the contribution of the capital market in the Nigeria economic growth and development. Aside the social and institutional factors inhibiting the process of economic development in Nigeria, the bottle neck created by the dearth  of finance to the economy constitutes a major setback to its development. As a result, it is necessary to evaluate the Nigerian capital market.


The study has the main specific objective, which is to ascertain the impact of the capital market on the Nigerian economy and to appraise the awareness or otherwise of the existence of the stock market by showing its impact in the business world. Other specific objectives are as follows:

  1. To determine the relationship between the Capital market and Nigerian economy.
  2. To determine or rather to evaluate if the differences of the market affects Nigerian economy.

iii.      To establish the effect of the Nigerian stock exchange crisis on Nigerian capital market.

  1. To ascertain if there are challenges of the Nigerian stock exchange in developing the capital market.
  2. To determine the role of Capital market in developing the Nigerian economy.

1.4              RESEARCH QUESTIONS

To achieve the above objectives, the following research questions were raised:

  1. Is there relationship between Capital Market and Nigerian Economy?
  2. How do the deficiencies of the Nigerian stock exchange affect the Nigerian Economy?

iii.      How does the crisis in the Nigerian stock exchange affects Nigerian Capital Market?

  1. What are the challenges of the Nigerian stock exchange in developing the Capital Market?
  2. What are the roles of the Capital Market in developing Nigerian Economy?


Ho1.  There is no significant relationship between capital market and Nigerian economy.

Ho2.  The deficiencies of Nigeria Stock Exchange market do not affect Nigerian economy.

Ho3.  The crisis of Nigerian Stock Exchange negatively affect Nigerian capital market.

Ho4.  The Nigerian stock exchange does not face any challenges in developing capital market.

Ho5.  Capital market did not play a significant role in developing the Nigerian economy.


This study investigates the capital market on economic growth of Nigeria. In other to fully capture it effect on the economy, a thorough empirical investigation will be conducted with data covering period of 35 years i.e. 1981-2015.

The major limitations are time constraints as combining academic work with project writing. I encountered difficulties in deriving data needed to carry out this research as different publications of similar agency in the capital market goes conflicting data for the same variable adopted in the study.

Nevertheless, the researcher was able to overcome them and as much this study was properly carried out.


Basically, the purpose of any scholarly research consists of the accumulation and codification of facts. These facts meant to assist in solving certain human problems, as political, social and economic. It is a noted fact that for a meaningful transformation of a country to take place a Capital market must be effective and active.

This research study seeks to acquaint us on the Impact of Capital market on economic growth in Nigeria. By finding the relationships that exist between the capital market and economic development within a Nigerian contest.

This study will be of significant interest to individuals, corporate bodies and governments as it would help them in mobilizing funds from the various networks of institutions that exist in the market.

This study will also be significant to the institutional operators of the market especially the Nigerian Securities and Exchange Commission (SEC) and the future researchers who might want to share the experience.

This study will however offer some invaluable points that would bring to the researchers mind on the functions and prospects of the Nigerian Stock market.

Lastly, students of economics and other departments and scholars who have interest in this study area will immensely benefit from the study.


In the definition of the terms, their purpose of the comprehension of the study, the terminologies relating to the Stock Exchange Market and its Growth and Development in the Nigerian economy will now be defined. These terms are listed and explained below;

  1. STOCK: These consist of the capital of a company or the amount of a government or local government loan, which has been issued so as to be fractionized at the will of purchase.
  2. MARKET: Is a system which buyers and sellers bargains for the price of a product, and transact product, the market for a commodity may be Local, Regional, National and International (Oboro 2017). The term does not mean a particular place or Location, but the whole area where the goods are spread.
  3. STOCK EXCHANGE: This is a market where securities (bonds, stocks and shares of varying types) are traded openly and where one can purchase or sell any of such securities with relative ease.
  4. FIRST TIER MARKET: This is a segment of the Nigerian stock exchange that contains matured companies, which meets all the listing requirements.
  5. SECOND TIER SECURITIES MARKET: Second tier securities markets are markets at the stock exchange to list the securities of smaller companies which are unable to meet the requirements for listing on the first tier markets.
  6. CAPITAL MARKET: It is that part of the financial market that provides facilities for the transfer of medium and long term funds, to various economic units.
  7. PRIMARY MARKET: This is a market or an avenue for raising new or fresh funds through the issuance of securities.
  8. SECONDARY MARKET: This is a market which provides the mechanism, for the transfer of existing financial assets.
  9. STOCK BROKERS: These are agents who purchase and sell securities on a stock exchange market on behalf of clients and receive remuneration for the service in form of commission.
  10. STOCK HOLDERS: Individuals, Businesses and Groups owning stocks in a corporation.
  11. FINANCIAL INSTRUMENTS: Is a contract involving a financial obligation. Examples include Stocks, Bonds, Loans and Derivatives.
  12. DEFICIT SAVINGS UNIT (DFU): An economic unit whose current income is less than its current expenditure.
  13. SAVINGS – SURPLUS ECONOMIC UNITS: These are units with more funds than they require for current consumption. They are therefore the ultimate savers or funds suppliers to the system.
  14. FINANCIAL INSTITUTIONS: These are institutions that use their funds chiefly to purchase financial assets, deposits, bonds, loans etc.




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