The Impact of the Capital Market on Investment in the Real Sector of the Nigerian Economy

International Journal of Research and Innovation in Social Science (IJRISS) | Volume III, Issue XI, November 2019 | ISSN 2454–6186

The Impact of the Capital Market on Investment in the Real Sector of the Nigerian Economy

Enaruna, Dubem Victor¹, Okene, Anthony Jovwo (ACA)²

^1,2Nigeria Maritime University, Nigeria

Abstract: – Many efforts have been made towards understanding the relationship between the capital market and investment in the real sector of Nigeria. The objective was set to examine the impact of capital market on investment in Nigeria. The review of theoretical and empirical literature provided a basis for the selection and specification of model which was used to show if and how the capital market impacts investment growth.
The data used in carrying out this research was sourced from the Central Bank of Nigeria statistical bulletin, 2016. The sample size employed for this study covers a period of 36 years (1981-2016). Preliminary tests were done such as Phillips-Perron unit root test for stationarity of the variables, the Johansen co-integration test was used to ascertain if there’s an equilibrium long run relationship between the variables. This study also uses the Error Correction Mechanism (ECM) to determine the impact of market capitalization, aggregate savings, new issues, interest and inflation rates on the gross fixed capital formation in Nigeria.
The result of the study shows that the capital market has a significant impact on capital formation in Nigeria. The potentials of the capital market in fostering investment growth in Nigeria were evaluated by using forecasting techniques and it was seen that investmentwill drastically decline without an active capital market.On the strength of this evidence, one of the proffered recommendations is that government should introduce policies to encourage investors in the capital market.

Keywords: Capital Market, Investment, Real Sector, Market Capitalization, All-shares index, Gross Fixed Capital Formation

I. INTRODUCTION

Any forward-thinking nation seeks an optimum industrial base to move the economy from a traditional and low level of production to a more automated and efficient system of mass production and processing of goods and services. For this level of development to be attained, there must be a sound financial system which would serve as the backbone of such an economy. The real sector is one of the major components of the Nigerian economy and for any country to boast of being fully industrialized, it cannot afford to neglect the real sector. The sector is basically made up of the manufacturing and service industries. These include housing, agriculture, manufacturing industry, mining, infrastructure and services. The capital market is capable, if active and vibrant, of accelerating economic growth and development in addition to a high level of employment creation. To achieve this, the role of the capital market cannot be overemphasized.

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