Capital Market Studies Research Group

Capital Market Studies Research Group
1.0 Group Members
 Prof. J.U.J Onwumere{(Department of Banking and Finance, University of Nigeria(UNEC)}
 Dr. Chuke E. Nwude (Reader, Department of Banking and Finance, UNEC)
 Dr (Mrs) N.J Modebe (Department of Banking and Finance, UNEC)
 Dr. (Mrs) Obiamaka Egbo (Department of Banking and Finance, UNEC)
 Dr.(Mrs) Chinwe Regina Okoyeuzu (Department of Banking and Finance, UNEC)
 Dr. (Mrs) Ifeoma Nwakoby (Department of Banking and Finance, UNEC)
 Dr. Imo G. Ibe (Department of Banking and Finance, Renaissance University)
 Rev. Fr  Dr Anthony Igwe (Department of Management, UNEC)
 Mr. Chibeze Onyeke (Department of Banking and Finance, UNEC)
 Miss. Chinwe Ada Olelewe (Department of Banking and Finance, UNEC)
2.0 Justification
The capital market has been described as the major vehicle for mobilizing long-term funds for investment purposes. A nation’s growth (economic) is expected to promote an efficient and effective financial sector that pools domestic savings and mobilises capital for productive purposes. Hence, an economy that is not growing can hinder stock market development, and engender such problems as Low capitalization, which limits the savings function of the stock market; and Illiquidity of the market which is a disincentive to investment.
The capital market connects the financial sector with the real sector of the economy and, in the process, facilitates real sector growth and economic development. It increases the proportion of long-term savings (pensions, etc) that are channeled to long-term investments; enables contractual savings industry (pension and provident funds, insurance companies, medical aid schemes, collective investment schemes) to mobilise long-term savings from individuals/households and channel them into long-term investments; and fulfils the transfer of current purchasing power from surplus sectors of the economy to deficit sectors, in exchange for reimbursing a greater purchasing power in the future, thus enabling corporations raise funds to finance their investments in real assets.
The implication will be increase in productivity within the economy leading to more employment, increase in aggregate consumption and, ultimately, growth and development. It also helps in diffusing stress on the banking system by matching long-term investments with long-term capital. It encourages broader ownership of productive assets by small savers. It enables them to benefit from economic growth and wealth distribution, and provides avenues for investment opportunities that encourage a thrift culture critical in increasing domestic savings and investment, essential for rapid industrialization. When an economy is not developing, its size may not support the growth and development of the stock market.
At the same time, economic growth which manifests as increase in an economy’s ability to produce real goods and services is also about the enhancement of an economy’s productive capacity to employ available resources, reduce risks, and remove impediments which, otherwise, could lower costs and hinder investment. It is related to a quantitative sustained increase in a country’s per capita output or income accompanied by expansion in its labour force, consumption, capital and volume of trade. Thus, studies that examine the dynamics of capital markets relationship with growth and development shall assist policy makers in the formulation of policies that will promote the overall growth of their economies, especially those of developing countries.
3.0 Statement of Intent
The early proponents of finance-led economic growth had argued strongly for the important role capital market development plays in promoting economic growth. They support their claim by positing that the industrial revolution in present day developed countries was the result of functioning capital markets that were instrumental in mobilizing and allocating long-term capital to the productive enterprises of their economies. This position was further buttressed when they argue that a well functioning capital market spurs technological, innovative, and productive activities, all which promote real sector growth.
On the other hand, there are also arguments that demand-pull initiatives from the private sector growth have the propensity to spur the financial sector to respond to financial or capital needs of the private sector. In this view, economic developments and financial needs create the demand for a certain financial structure to cater to the needs of the sector.
Though numerous studies had sprung up to deal with the different aspects of this relationship (supply-led and demand-following) both on theoretical and empirical grounds, the situation in developing countries must be continually explored. This is because long-term capital is critical to their development.
4.0 Research Focus
Our studies will focus on sub-Saharan African countries that have functional capital markets. In the early eighties, the decline in the growth rate of developed countries, the rise in oil prices, the debt crisis in developing countries and the worsening of their terms of trade pushed the basic needs development strategy to the background. Many sub-Saharan African countries embarked on programmes of stabilization and structural adjustments. Initially, stabilization measures supported by the International Monetary Fund (IMF) and the World Bank were aimed at reducing inflation, cutting public spending, reducing wages and raising interest rates. Goaded by the World Bank and IMF, many developing countries (including sub Saharan African countries) switched to long-term structural adjustment programmes. Thus, our studies will examine the relationship between the capital market and economic growth/ development both from the demand-following and supply-led hypotheses and other dynamics. These will be from the period of their general adoption of structural adjustment programmes (notably 1980s) to this period of craving for inclusive and sustainable development.