Capital Market Development and Manufacturing Sub-Sector Output in Nigeria

Abstract

The role of the capital market in generating the funds that fits the long term gestation of the manufacturing sector is sacrosanct for the productive sector in Nigeria. This study examined the effect of the capital market development on the variations in the manufacturing sector output in Nigeria. The study thus modeled manufacturing sector output as a function of market capitalization ratio, turnover ratio, all share index and new issues as proxies for capital market development. Secondary data obtained from the CBN Statistical bulletin were analyzed with Auto-regressive Distributive Lag model. The results showed that capital market development indicators have significant long and short run effect on manufacturing sector output in Nigeria; wherein the causal relationship runs from the manufacturing sector output to market capitalization and new issues, and from turnover ratio (liquidity) to manufacturing sector output. It further showed that the long run effect is driven by the positive and significant effect of the market capitalization ratio on manufacturing output. The short run dynamism revealed the only 19% adjustment of deviation was returned to equilibrium with positive effects from the turnover ratio (liquidity) and new issues ratio (new funds) whereas market capitalization adversely affect growth of manufacturing sector. The study thus conclude that capital market is veritable for the manufacturing sector growth.