ABSTRACT
Many efforts have been made towards understanding the relationship between the capital market and investment in the real sector of Nigeria. The capital market of every economy is setup for the attainment of specific objectives which includes increasing capital formation, economic growth and stability.
The objective was set to examine the impact of capital market on investment in the industrial sector of the Nigerian economy. The review of theoretical and empirical literature provided a basis for the selection and specification of model which was used to show if and how the capital market impacts investment growth.
The data used in carrying out this research was sourced from the Central Bank of Nigeria statistical bulletin, 2017. The sample size employed for this study covers a period of 37 years (1981-2017). Preliminary tests were done such as Phillips-Perron unit root test for stationarity of the variables, the Johansen co-integration test was used to ascertain if there’s an equilibrium long run relationship between the variables. This study also uses the Error Correction Mechanism (ECM) as well as Granger Causality test to determine the impact of market capitalization, aggregate savings, new issues, value of transaction, interest rate and exchange rates on the industrial output in Nigeria.
The results of the study show that the capital market has a significant impact on investments in Nigeria. The potentials of the capital market in fostering investment growth in Nigeria were evaluated by using forecasting techniques and it was seen that investment in the long run will drastically decline without an active capital market.
On the strength of this evidence, this research recommends that government should introduce policies to motivate and encourage investors in the stock market. If these recommendations are efficiently implemented, the effectiveness of the Nigerian capital market will be enhance
