CAPITAL MARKET TRANSMISSION CHANNELS AND REAL SECTOR PERFORMANCE IN NIGERIA (1984-2016): IMPLICATIONS FOR ECONOMIC GROWTH

Ayodeji, Emmanuel A

doi:10.31142/afmj/v3i12.02

Abstract

The study examined the channels through which capital market impulses are transmitted to the real sector of the economy in the achievement of economic growth in Nigeria within the time frame 1984-2016. On the theoretical basis of the endogenous growth model of the finance-growth theory, the study identified four capital market transmission channels, which are the efficiency channel, savings-investment channel, liquidity transformation channel, and wealth creation channel. The efficiency channel was proxied by all-share index; savings-investment channel was proxied by market capitalization and number of listed equities; liquidity transformation channel was proxied by number of deals and stock market turnover; and wealth creation channel was proxied by value of deals and value of transactions. The study sourced time-series data, in relation to these proxies, from the capital market bulletins of the Nigerian Securities and Exchange Commission, and the annual reports and accounts of the Nigerian Stock Exchange, and estimated them using vector auto regression approach. The study found that, capital market variables exerted heterogeneous effects on and transmitted heterogeneous impulses to the real sector of the Nigerian economy. Not only that, significant variations in gross domestic product were caused by the liquidity transformation channel and partially by the savings-investment channel. Transposing gross domestic product against each of the capital market variables, it was found that, gross domestic product exerted positive influences on only number of deals and stock market turnover, that is, liquidity transformation channel. However, it exerted negative influences on efficiency, savings-investment and wealth creation channels. It was also found that, a unidirectional causality exists between capital market transmission channels and economic growth in Nigeria, running from savings-investment channel to economic growth, and running from liquidity transformation channel to economic growth. It was, therefore recommended that, the Nigerian capital market should be sanitized by fishing out bad eggs from its leadership and operators, and by reinforcing the criminalization of insider abuses and market infractions with stricter acts of parliament, so that public confidence can be restored in the market. Second, more regulatory infrastructures should be developed for the operations of the Nigerian capital market as additions to the already existing technology-driven Broker Oversight and Supervision System (X-BOSS). The additional infrastructures should be able to reflect the activities of listed companies. Third, training and development programmes, which aim at re-orientating the leadership and staff of the Securities and Exchange Commission, towards effective policing of the market, should be embarked upon.

Highlights

An economy is divided into the public sector and the private sector; and it is classified into the real sector and the financial sector
The real sector is the engine of growth, as commercial activities, industrial activities, mining activities and agricultural activities are the major components of Gross Domestic Product (GDP for short), so that a sustained increase in GDP growth rate would be tantamount to economic growth
The null hypothesis of the Augmented Dickey Fuller (ADF) test of ‘no stationarity’ was rejected. This was based on MacKinnon (1996) critical values; and, in relation to Schwartz Information Criterion (SIC), the lag length was selected, which ranges from lag 0 to lag 2

Summary

Introduction

An economy is divided into the public sector and the private sector; and it is classified into the real sector and the financial sector. The real sector is the sector of the economy that is involved in the production of goods and services for the creation of utility (utility is the power of a commodity to satisfy human wants). The financial sector is the sector of the economy that is involved in rendering financial services to economic agents (i.e. individuals, firms and governments). The financial sector renders financial services to the real sector of the economy. The real sector is otherwise referred to as the goods market, and it is sub-classified into commerce, industry, mines and agriculture, while the financial sector is often regarded as the financial market, which is subclassified into the money market and the capital market. The financial sector is the hub of the economy, and it serves as the lubricant for the running of the engine of growth in the economy, that is, the real “Capital Market Transmission Channels and Real Sector Performance in Nigeria (1984-2016): Implications for Economic Growth”

Results

Discussion

Conclusion