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ECONOMICS UNDERGRADUATE PROJECT TOPICS RESEARCH WORKS AND MATERIALS

The Roles of capital market in industrial growths and developments in nigeria

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CHAPTER ONE

BACKGROUND TO THE STUDY

The capital has been identified as an institution that contributes to the socio-economic growth and development of emerging and developed economies. This is made possible through some of the vital s played such as channeling resources, promoting reforms to modernize the financial sectors, financial intermediation capacity to link deficit to the surplus sector of the economy, and a veritable tool in the mobilization and allocation of savings among competitive uses which are critical to the growth and efficiency of the economy (Alile 1984).

It helps to channel capital or long-term resources to firms with relatively high and increasing productivity thus enhancing economic expansion and growth (Alile 1997). Ekundayo (2002) argues that a nation requires a lot of local and foreign investments to attain sustainable economic growth and development. The capital provides a means through which this is made possible. However, the paucity of long-term capital has posed the greatest predicament to economic development in most African countries including Nigeria.

Osaze (2000) sees the capital as the driver of any economy to growth and development because it is essential for the long-term growth capital formation. It is crucial in the mobilization of savings and channeling of such savings to profitable self-liquidating investment.

The Nigerian capital provides the necessary lubricant that keeps turning the wheel of the economy. It not only provides the funds required for investment but also efficiently allocates these funds to projects of best returns to fund owners. This allocative function is critical in determining the overall growth of the economy. The functioning of the capital affects liquidity, acquisition of information about firms, risk diversification, savings mobilization and corporate control (Anyanwu 1998). Therefore, by altering the quality of these services, the functioning of stock s can alter the rate of economic growth (Equakun 2005). Okereke-Onyiuke (2000) posits that the cheap source of funds from the capital remain a critical element in the sustainable development of the economy. She enumerated the advantages of capital financing to include no short repayment period as funds are held for medium and long term period or in perpetuity, funds to state and local government without pressures and ample time to repay loans.

In 1986 Nigeria embraced the International Monetary Fund (IMF)-World Bank Structural Adjustment gramme (SAP) which influenced the economic policies of the Nigerian government and led to reforms in the late s and early 1990s.The programme was proposed as an economic package to rapidly and effectively transformed the Nigerian economy within two years (Yesufu 1996). However, until SAP was abandoned in 1994, the objectives were not achieved due to the inability of government to judiciously implement some of its policy measures Oyefusi and Mogbolu 2003). The notable reforms include monetary and fiscal policies, sectoral reforms such as removal of oil subsidy in 1988 to the tune of 80%,interest deregulation from August 1987, financial reform and public sector reforms which entails the full or partial privatization and commercialization of about 111 public owned enterprises. The Nigerian Stock Exchange was to play a key during the offer for sale of the shares of the affected enterprises (World Bank 1994; Anyanwu ; Anyanwu et al. 1997; Oyefusi and Mogbolu 2003).

The introduction of SAP in Nigeria has resulted in a very significant growth of the country’s stock as a result of deregulation of the financial sector and the privatization exercise which exposed investors and companies to the significance of the stock (Alile1996;Soyode 1990). Ariyo and Adelegan (2005) contend that the liberalization of capital led to the growth of the Nigerian capital yet its impact at the macro-economy was negligible. Again the capital was instrumental to the initial 25 banks that were able to meet the minimum capital requirement of N25billion during the banking sector consolidation in 2005.The stock has helped government and corporate entities to raise long-term capital for financing new projects, and expanding and modernizing industrial/commercial concerns (Nwankwo 1991).

Given the s the capital has played during the privatization of public owned enterprises, recent recapitalization of the banking sector and avenue of long term funds to various government and corporations in Nigeria.

The major focus of this research is to empirically assess with the contribution of capital to economic growth in Nigeria.

STATEMENT OF THE PROBLEM

The capital is one of the main avenues investors invest their hard earned currency in anticipation of good returns or yield. But since the inception of the global economic crunch in addition to a number of causing factors the impact of the capital has remained rather docile. The federal government effort at revamping it has still not yielded enough result.

In the light of this, the following statement of research questions are being raised.

1. Does the capital enhance the growth of the Nigerian economy?

2. Does the capital enhance and promote investment in Nigerian economy?

3. Does the capital help to increase value of transactions (government and industrial securities)?

RESEARCH OBJECTIVES

This seeks to achieve the following objectives.

1. To ascertain whether the capital enhance the growth of the Nigerian economy.

2. To critically examine whether capital enhance and promote investment in Nigerian economy.

3. To verify whether the capital help to increase value of transactions (government and industrial securities).

SCOPE OF THE STUDY

This study is undertaken to evaluate the impact of Nigerian Capital Market as an Instrument in mobilization of investment capital. As such, this study is restricted to all companies quoted on the floor of the Nigerian Stock Exchange . Temporally or in term of time series, a period of twenty seven years is used i.e. 1981 to 2008 using some indicators as means of assessing the impact of the capital in mobilizing investment in Nigeria. It is hoped that this will help to achieve the stated objective of the study.

RESEARCH HYPOTHESIS

The following hypothesis will be tested

I

Ho: The capital does not enhance the growth of the Nigerian economy

H1: The capital still enhance the growth of the Nigerian economy

II

Ho: The capital does not enhance and promote investment on the Nigerian economy.

H1: The capital still enhances and promotes investment on the Nigerian economy.

III

Ho: Capital does not help to increase value of transactions (government and industrial securities) in Nigeria.

H1: Capital helps to increase value of transactions (government and industrial securities) in Nigeria.

SIGNIFICA OF STUDY

This on its conclusion, together with whatever solution or findings that may arise, will prove useful to some particular group of persons or otherwise for various reasons in accordance with their varying needs.

Beneficiaries

Stakeholders: This study will be important and beneficial to stakeholders of an organization to know the of the Nigerian capital in mobilizing investment in Nigeria economy.

The Government: It will acquaint the government of the importance of Nigerian Capital Market and how it should be properly managed.

The public: This study will help to restore the lost confidence of the public as regard the Nigerian capital and investment mobilization in Nigeria economy.

Academic/future researcher: Both academic and other future researchers in this similar subject matter will find it a useful source of learning and research.

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