Impact of Capital Market Development on Industrial Sector Output in Nigeria: 1986-2022

Abstract

The ideal situation for any growing economy, especially one as diversely poised as Nigeria, is to have a thriving industrial sector. This sector is traditionally seen as an indispensable engine of growth, a crucial antidote to the challenges of unemployment, and a potent creator of wealth. Regrettably, the current state of the manufacturing sector in Nigeria falls significantly short of this ideal. Recent statistics indicate that the industrial sector’s contribution to GDP remains suboptimal, with the National Bureau of Statistics (NBS) reporting a decline in industrial growth despite several policy measures aimed at enhancing its growth. This research sought to investigate the impact of capital market development on the growth of industrial sector in Nigeria between 1986 and 2022 with the aid of ARDL estimation technique. The findings revealed that Stock Market Capitalization had a significant and positive impact on industrial sector growth, suggesting that as market capitalization increased, the industrial sector flourished. In the same vein, Turnover Ratio, which is the value of traded shares divided by market capitalization, was found to enhance industrial sector growth positively and significantly. These positive relationships underscored the pivotal role the capital market plays in boosting the industrial sector by mobilizing and channeling resources efficiently. However, the All-Share Index exhibited a negative relationship with the industrial sector growth, indicating that while general market sentiment might be positive, it might not always translate to growth in the industrial sector. Based on these findings, the paper recommended promoting public listings and private investments as a strategy to enhance the growth potential of the industrial sector. Furthermore, improving trading platforms, ensuring market transparency, and reducing transactional costs were emphasized to leverage the benefits of a high turnover ratio. For the negative aspects found with All-Share Index, policymakers were advised to address these components to ensure holistic development of both the capital market and the industrial sector.