1.1 Introduction
The capital market is a financial system that facilitates the mobilization of long-term funds from investors and allocates them to productive sectors of the economy. It consists of institutions, instruments, and mechanisms through which savings are transformed into investments in equity and debt securities (Oladejo et al., 2025). The primary objective of a capital market is to provide a platform for raising long-term finance for businesses, governments, and other organizations, thereby promoting investment, productivity, and overall economic growth. In Nigeria, the capital market is composed of the Nigerian Stock Exchange (NSE), the bond market, and other securities markets, which collectively serve as a channel for mobilizing domestic and foreign savings to finance development initiatives (Aliyu et al., 2024).
As a prelude to other parts of this study, this chapter will discuss the background upon which this study was initiated, the statement of problems that led to this study, the Aim and Objectives of the study. Others are significance of the study, scope of work, research hypothesis and questions, limitation of the study and definition of terms.
1.2 Background of Study
The capital market is a critical component of any economy as it provides a structured environment for raising long-term funds and mobilizing savings for investment purposes. According to Enimola (2025), the capital market is a financial system through which surplus funds are transferred from savers to investors, thereby facilitating the growth of industries and infrastructure development. It is reported that in developing economies like Nigeria, the capital market is essential in bridging the financing gap for long-term projects that are beyond the capacity of commercial banks. Several scholars have emphasized the link between capital market development and economic growth.
Oladejo et al. (2025) asserted that an efficiently functioning capital market promotes resource allocation, encourages savings, and improves investment opportunities, which ultimately contributes to national development. Similarly, Aliyu et al. (2024) stated that market capitalization, liquidity, and the availability of diverse financial instruments are positively associated with indicators of economic growth, including employment generation, industrial output, and technological advancement.
Umar (2022a) affirmed that regulatory weaknesses, limited investor participation, and macroeconomic instability have hindered the market's effectiveness in driving real sector growth. Umar (2022b) contended that although there have been improvements in market performance through reforms and policy interventions, persistent structural inefficiencies and underdeveloped investment instruments continue to constrain the market's contribution to sustainable economic development.
On the other hand, the Nigerian capital market has shown signs of resilience and growth. According to Oladejo et al. (2025), the market has witnessed increased market capitalization, improved governance, and the introduction of innovative financial instruments such as corporate bonds, treasury bills, and exchange-traded funds, which affirm its potential as a catalyst for economic transformation. Furthermore, Enimola (2025) stated that these developments indicate that with enhanced policy measures, improved regulatory frameworks, and increased investor education, the capital market can significantly accelerate Nigeria's economic growth trajectory.
The importance of studying the capital market in the context of Nigeria's economic development is further highlighted by the persistent need for long-term investment financing and the country's ambition to diversify its economy beyond oil dependency. Scholars contend that strengthening the capital market is fundamental for achieving macroeconomic stability, industrial growth, and equitable distribution of income (Aliyu et al., 2024; Umar, 2022a). This study is set against the backdrop of the critical role the capital market is expected to play in mobilizing long-term funds, supporting productive investment, and driving sustainable economic development in Nigeria.
1.3 Statement of Problems
Investigation revealed that limited market depth and participation among both domestic and foreign investors is one of the major problems affecting capital market. Low trading volumes, few new listings, and slow growth in market capitalization relative to the country's economic potential also limit the pool of long-term capital available for business expansion and economic transformation (Aliyu et al., 2024).
Furthermore, the range of investment instruments available to investors is narrow, limiting diversification opportunities and reducing the market's ability to mobilize savings for strategic sectors such as manufacturing, infrastructure, and technology-driven industries. As a result, the capital market's contribution to key development indicators such as employment generation, industrial growth, and income distribution is weaker than expected (Oladejo et al., 2025). It is against this backdrop that this study seeks to examine the impact of the capital market on economic development in Nigeria.
1.4 Aim and Objectives of Study
The aim of this study is to evaluate the impact of the capital market on economic development in Nigeria. The specific objectives are:
- To identify the challenges and inefficiencies within the Nigerian capital market that limit its contribution to economic development.
- To assess the relationship between capital market performance and industrial growth in Nigeria.
- To investigate the effect of capital market development on national income and wealth distribution.
- To examine the influence of capital market activities on employment generation in the country.
- To propose recommendations to enhance the effectiveness of the capital market as a tool for national economic growth.
1.5 Research Questions
The study came up with research questions so as to be able to ascertain the above stated objectives. The specific research questions for the study are stated below as follows:
- What is the relationship between capital market performance and industrial growth in Nigeria?
- How do capital market activities influence employment generation in the country?
- What is the effect of capital market development on national income and wealth distribution?
- What are the major challenges and inefficiencies within the Nigerian capital market?
- What strategies can be implemented to enhance the effectiveness of the capital market in driving economic development?
1.6 Research Hypothesis
In order to pursue the objective of this study, the following generalized statements have been designed to guide and aids in obtaining the result for the experiment to be conducted. For this work, the null hypothesis will be represented with H0 while the alternative hypothesis will be represented with hypothesis H1.
- H0: There is no significant relationship between capital market performance and economic development in Nigeria.
- H1: There is a significant relationship between capital market performance and economic development in Nigeria.
1.7 Significance of Study
It is believed that at the completion of the study, the research will inform policy formulation that will improve the efficiency and transparency of the capital market. Also, the findings will guide investors in making strategic decisions that will maximize returns and reduce risks.
Furthermore, the study will show how access to capital market financing will support business growth and technological advancement. In addition, the research will help institutions understand how market reforms and financial innovations will increase liquidity and participation.
Lastly, the study will provide empirical evidence that will support future research on the relationship between capital market development and economic growth.
1.8 Scope of Study
The scope of the research is focused on the Nigerian capital market, with particular attention to activities on the Nigerian Stock Exchange (NSE) and selected listed companies such as Dangote Cement Plc and Guaranty Trust Bank Plc.
The study examines the influence of capital market performance on industrial growth, employment generation, and national income distribution in Nigeria. Data will be collected from financial reports, stock market indices, and relevant economic records for the period 2015–2025.
1.9 Limitations of the Study
During the course of this study, there were some problems encountered which stood as limitations to the research work. Some of the limitations include:
- Time Constraint: The time frame given to accomplish this project was very short due to school academic calendar and it was carried out under pressure which made the researcher not to implement some necessary features.
- Financial Constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).
- Initial Cooperation Delay from Respondents: A particular limitation of this work came as a result of the respondent refusal to offer their cooperation at the initial time they were contacted. This contributed in making the success of this research study difficult.
1.10 Definition of Terms
Capital Market: According to Enimola (2025), the capital market is a financial system that facilitates the mobilization of long-term funds from savers to investors, enabling investment in equities, bonds, and other financial instruments for economic growth.
Economic Development: Aliyu et al. (2024) defined economic development as the process by which a nation improves the economic, political, and social well-being of its people through increased industrialization, employment, and income distribution.
Market Capitalization: Umar (2022a) stated that market capitalization refers to the total market value of a company's outstanding shares of stock, which reflects the size and performance of the capital market.
Liquidity: Oladejo et al. (2025) reported that liquidity is the ability to buy or sell securities in the market without causing significant price changes, which is crucial for efficient market functioning.
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