IMPACT OF CAPITAL MARKET FINANCING ON ECONOMIC DEVELOPMENT OF NIGERIA
Need help with a related project topic or New topic? Send Us Your Topic
DOWNLOAD THE COMPLETE PROJECT MATERIAL
IMPACT OF CAPITAL MARKET FINANCING ON ECONOMIC DEVELOPMENT OF NIGERIA
Chapter one
INTRODUCTION
1.1 Background of the Study
Economic development is one of the primary macroeconomic objectives that any country attempts to achieve. It is defined as a persistent gain in real per capita income that is not accompanied by an increase in inequality or the number of persons living below the poverty line (Jhingan, 1981).
Thirlwall (1983) emphasised that development occurs when basic requirements are met, economic progress contributes to a higher feeling of self-esteem for countries and persons within them, and material progression broadens individuals’ options.
In a nutshell, economic development is defined as economic growth combined with desirable social transformation or an equitable distribution of income and socially ideal resources. ‘Utilisation’ (Fashola, 1998).
The following demonstrates that economic development is inextricably linked to economic growth. The growth process is often characterised by the implementation of long-term investment projects capable of stimulating the economy’s productive potential.
In third-world countries, policymakers and the international community have long expressed worry about the level of underdevelopment. Some of the factors considered by those in government include the need to alleviate poverty, boost industrial capacity utilisation, reduce unemployment rates, and maintain price stability.
The realisation of the commendable goals of economic growth is dependent on the provision of key infrastructures that permit the mobilisation of development input, all of which are long-term in character.
It follows that the success of any economic development endeavour will be determined by the availability of long-term financing, which will support long-term investment.
The capital market serves as a source of long-term financial agreements, which connects it to economic progress.
The Collins dictionary of economics defines the capital market as a “market for long-term company loan capital, share capital, and government bonds.”
Similarly, it has been described as the “complex of institutions and mechanisms through which intermediate term funds and long term funds are pooled and made available, and instruments that are already outstanding are transferred”.
Kadiri (1992) described the capital market as a market in which scarce long-term funds are mobilised and efficiently distributed to accomplish economic growth and development.
It has also been described as an exchange mechanism that brings together vendors and buyers of a product or service, as well as factors of production for financial securities.
The capital market primarily serves as a financial intermediary, facilitating the transfer of funds from an economy’s surplus sector to its deficit sector in order to promote economic development.
The capital market’s key components are banks and the stock exchange market. Both of them provide different types of services; nonetheless, theories and empirical research have shown that they contribute greatly to the economic development of any nation.
For example, in a study conducted by Levine and Zervous (1996) utilising data from 49 countries from 1976 to 1993, they discovered that stock market liquidity, size, volatility, and integration are associated with international capital accumulation, productivity gains, and private savings.
The existing literature clearly shows that developed nations have investigated the two avenues via which resource mobilisation affects economic growth and development: money and capital markets (Samuel, 1996; Demigue-Kunt and Levine, 1996).
This is not the situation in developing economies, where the emphasis is on the money market with little regard for the capital market (Nyong 1997). The Nigerian stock market has expanded dramatically since the implementation of the Structural Adjustment Programme (SAP) (Alile, 1996; Soyede, 1990).
This is the effect of financial sector liberalisation and privatisation, which exposed investors and firms to the importance of the stock market. Equity finance has become one of the most cost-effective and flexible sources of capital market financing, and it continues to be an important component of the economy’s long-term development (Okereke – Onyiuke, 2000).
Based on their research into emerging markets, analysts have raised significant concerns about the relationship between stock market performance and economic growth (Samuel, 1996 Obadan, 199).
According to Nyong (1997), a firm’s financial structure, which is a combination of debt and equity financing, develops as economics evolve. The trend, however, is towards equal financing via the stock market.
As the economy grows, more finances are required to support the expansion. The stock market is a valuable tool for mobilising and allocating savings among competing users, which is crucial to economic growth and efficiency (Alile, 1984).
Though the stock market is expanding, it is also characterised by complexity. The complications stem from the tendency of globalisation and the expanded diversity of new products being traded; stock options, derivatives of various types, index futures, etc.
However, the primary goal of the global stock market is the preservation of an efficient market with the accompanying benefits of economic growth (Alile, 1997).
Need help with a related project topic or New topic? Send Us Your Topic