1.1 Background to the Study
It is a well acknowledged fact that there exist a positive and significant relationship between capital market development, economic growth and development. For instance, Rajan and Zingales (2001) supposed that capital market development stimulate economic growth and therefore excite positive impact on poverty reduction, employment generation and income distribution. In other word, capital market development translates to economic growth without hindrance.
Capital Market is viewed as a medium to encourage savings, help channel savings into productive investment, and improve the efficient and productivity of investment. The emphasis on the growth of capital markets for domestic resource mobilization has also been strengthened by the need to attract foreign capital in non-debt creating forms.
The current high rates of unemployment and underemployment in Nigeria have generated a lot concern from Nigerians especially amidst positive macroeconomic indicators. Oladeji (2014) reported based on the submission of Anyanwu (1996) that taken alone none of the monetary variables (money supply, lending rate, domestic credit) significantly reduces unemployment and conversely, taken alone, all the fiscal variables (except recurrent expenditure) are highly significant in reducing unemployment in Nigeria. Oladeji (2014), therefore advocates an appropriate mix between monetary and fiscal policy instruments in order to reduce unemployment.
While this is acceptable on the part of the government and monetary authority, the private sector input especially through the capital market for medium and long term financing which was not considered in Anyawu (1996) is also very crucial in curtailing unemployment. The capital market dimension for curtailing unemployment and improving the citizens’ welfare through the capital market wealth effect becomes more apt especially in an economy that is moving towards being fully private sector-led.
Unemployment according to Everyman’s Dictionary of Economics is defined as “involuntary idleness of a person willing to work at the prevailing rate of pay but unable to find it (Jhingan, 2008). The unemployment rate has continued to take an upward surge in the last three decades in Nigeria. In fact Oladeji (2014) notes that the deregulation of the economy according to the Structural Adjustment Programme (SAP) philosophy was not employment-focused but only pre-occupied with attainment of non-inflationary growth. For instance, evidence from the CBN (2011) report indicates that the unemployment rate was 3.5% and 4.7 % in 1990 and 2000 respectively and surged to 11.9 per cent in 2005 and the rise has continued unabated since then closing at 25.7 per cent in 2012. This has had major implications on the economy as the unemployed labour force contributes nothing to the growth of the economy. Available evidences are pointers to consequences of unemployment in the country including unimpressive economic growth rate, social vices and poverty. The Nigerian economy has grown at unimpressive rates over the years relative to its potentials given its abundant natural and human resources. The CBN (2011) report indicates that the economy grew at the rate of 6.4%, 7.0% and 7.4% in 2007, 2009 and 2011 respectively.
The poverty line has remained unabated with 54.7% on the absolute poverty line and62.8% of Nigerians leaving on less than US$1.0 per day (CBN, 2011). The poor state of infrastructure especially the epileptic power supply, roads and other important facilities to facilitate employment in rural agriculture and industrial employment in the cities has not helped matters. Limited access to credit and its attendant cost have continued to militate against expansion of industries and agricultural productions with grave consequences on job creation. Despite many government efforts at job creation through various programmes and interventions like the establishment of National Directorate of Employment (NDE), Graduate Agricultural Schemes and collaborations with the private sector for Commercial Agriculture Credit Scheme (CACS), Small and Medium Enterprises/Manufacturing Refinancing and Restructuring Fund (SME/MRRF) and a host of others, unemployment is still on the rise. Usman & Adeyemi (2012) asserts that in Nigeria, employment problems transcend beyond mere mismatch between available jobs and the scale or scope of prospective job seeker to cut across all known frontiers and sectors (the skilled, the unskilled and semi-skilled).
One of the most critical problems militating against business expansion is access to finance for both large and small scale enterprises. It is argued by Fehn and Fuchs (2003) that while the often-blamed labor-market rigidity alone is important, it does not provide a satisfactory explanation for the differences across countries and over time. Financial constraints are potentially important obstacles against creating new firms and jobs and thus against coping well with structural changes and against moving successfully toward the new economy. The large firms that are quoted on the exchange have can access large amount of formal financing from banks and the capital market. The financial market especially the banks and capital markets has been identified as being more efficient in the mobilization of surplus funds from households, firms and government and channeling them to the deficit units for more productive uses within the economy. While the banks concentrate on short and medium term credits the capital market is more dependable for long term debt and equity financing. Anyawu (1999) asserts that lack of funds affects the ability of firms to embrace viable investment opportunities especially in modern machineries and human resources development. Banks however are reluctant at lending funds to manufacturers due to its perceived high risk and mismatch between the short term funds from banks and long term funds needed by industries despite its potential high long-run returns.
The capital market may be relied on for long term investment and expanding industrial capacity in order to create more jobs and tackle the problem of unemployment in Nigeria. For instance the Nigerian capital market created the platform for the banks and insurance companies’ recapitalization between 2004 and 2006 while the likes of Dangote Group and Honeywell Group plc raised their initial public offers (IPOs) on the Nigerian Stock Exchange (NSE) to become public firms.
These companies today have expanded their operations and created many new jobs directly and indirectly along their value chains. It has been argued that resources especially finance is a major factor that limits investment and consequently the inability to create jobs or expand existing capacity and consequently unemployment.
Surprisingly, while the Nigerian capital market has grown significantly over the years unemployment continues to rise, this study therefore, examines the role of capital market in employment generation in Nigeria.
1.2 Statement of the Problem
One of the most critical problems militating against business expansion is access to finance for both large and small scale enterprises. It is argued by Fehn and Fuchs (2003) that while the often-blamed labor-market rigidity alone is important, it does not provide a satisfactory explanation for the differences across countries and over time. Financial constraints are potentially important obstacles against creating new firms and jobs and thus against coping well with structural changes and against moving successfully toward the new economy. The large firms that are quoted on the exchange can access large amount of formal financing from banks and the capital market. The financial market especially the banks and capital markets has been identified as being more efficient in the mobilization of surplus funds from households, firms and government and channeling them to the deficit units for more productive uses within the economy. While the banks concentrate on short and medium term credits, the capital market is more dependable for long term debt and equity financing. Anyawu (1999) asserts that lack of funds affects the ability of firms to embrace viable investment opportunities especially in modern machineries and human resources development. Banks however are reluctant at lending funds to manufacturers due to its perceived high risk and mismatch between the short term funds from banks and long term funds needed by industries despite its potential high long-run returns.
The capital market may be relied upon for long term investment and expanding industrial capacity in order to create more jobs and tackle the problem of unemployment in Nigeria. For instance the Nigerian capital market created the platform for the banks and insurance companies’ recapitalization between 2004 and 2006 while the likes of Dangote Group and Honeywell Group plc raised their initial public offers (IPOs) on the Nigerian Stock Exchange (NSE) to become public firms. These companies today have expanded their operations and created many new jobs directly and indirectly along their value chains. It has been argued that resources especially finance is a major factor that limits investment and consequently the inability to create jobs or expand existing capacity and consequently unemployment.
Surprisingly, while the Nigerian capital market has grown significantly over the years unemployment continues to rise, reflecting the same situation in South Africa, the largest stock exchange in Africa. Contrarily, the other two leading exchanges in Africa namely, Egypt and Morocco have unemployment rates between 9 and 13 percent barely half of the situations in Nigeria.
This study therefore, seeks to examine the impact of capital market on employment generation and to proffer certain policy recommendations as to how the government through appropriate policy reforms can create more employment opportunities for its citizens.
1.3 Objectives of the Study
The broad objective of this research work is to empirically investigate the impact of capital market on employment generation in Nigeria.
The specific objectives include:
1.5 Research Hypotheses
Hypothesis 1
H1
:There is significant long run relationship between Market Capitalization and Employment generation in Nigeria.
Hypothesis 2
H 1
1.6 Significance of the Study
It is expected that this study would consolidate existing literature on the issues surrounding the relationship between capital market and employment generation in Nigeria. The study would also facilitate the examination of the impact of capital market on employment generation and thus boosting the empirical evidence from Nigeria.
Furthermore, given the empirical nature of the study, the outcome of this study would aid policy makers and regulatory bodies and policy stimulation with respect to the selected variables examined in the study.
The result of the study would be of benefits to education analysts, and institutions in examining the effectiveness of capital market on employment generation. It will also be useful in simulating public discourse given the dearth of empirical researchers in this area from emerging economics like Nigeria.
1.7 Scope/ Limitation of the Study
This study is limited to analyze the impact of capital market on employment generation in Nigeria from 1980-2015. The choice of this period is based on the economic history of the nation, The 1980s witnessed a radical change in Nigeria economic, which led to the introduction of structural adjustment program (SAP) and also to have enough data point so as meet the OLS assumption of N ? 30, yearly data will be adopted. It is hoped that this will help to achieve the stated objectives of the study.