Capital Market Transmission Channels and Real Sector Performance in Nigeria (1984-2016): Implications for Economic Growth

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.