Impact of money market on Nigeria economic growth 1981-2016, download full project material from chapter one to five with reference. money market on Nigeria economic growth examined money market instrument as an option for raising funds and regulating economic activities in the country.
1.1 Background of the Study
Money markets remain a key instrument employed to jumpstart the economy and ensure growth and development of any Nation (Ajayi, 2008). Every nation requires a lot of local and foreign investments to attain sustainable economic growth and development. The financial markets are types of markets designed for the creation and disposition of financial assets.
There are two sections of the financial markets in Nigeria, namely: money market and capital market (Central Bank of Nigeria-CBN, 2004; 2007). In every economy, there often exist financial imbalances and disequilibrium, which calls for the existence of financial markets. Financial markets are institution or arrangements which facilitate the exchange of financial assets such as; deposit and loans, stock and bonds, government securities etc. the market is broadly classified into money market and capital market. To Oloyede (as cited in Ezrim, 2005) organized money market is a market for short-term investible fund where short term financial instruments or liquid assets are bought and sold. Its major significance is that it is the machinery for the mobilization of the countries (financial) resources for economic growth.). Capital market on the other hand, provides long term capital to government and corporate bodies with maturity over a year, and often prone to greater risk of default.
Financial assets fall into three general categories namely: a) Money – issued by the Central Bank of a country on behalf of the Government of the country as paper currency and coins; b) Debt – issued by corporate and Government units; and c) Shares – issued by companies. Questions often abound, over the role of money market in accelerating economic growth. Their role in facilitating profitable open market operations is worth stressing (CBN, 2004; Ezirim, 2005). The Nigerian money market operations are said to be sub-optimal in terms of engineering desired growth in the economy. The observed sub-optimality of the Nigerian money market is blamed, in part, on poor performance of discount houses and other money market institutions (Kizito, 2013). One of the objectives of setting up the Nigerian discount house is to facilitate sale in short–term securities and to promote an efficient money market. They were expected to cause the Nigerian money market to operate optimally.
The dominant players in money market are commercial banks and other itself provides the basis for operation, manipulation and execution of monetary policies, with discount houses intermediating funds between the central bank and other banks. Money market is the greatest indirect instrument used by central bank of Nigeria (CBN) to control commercials banks. The market provides short – term debt instruments used to finance the working capital of the firms. It provides mechanism for government to direct the economy towards the desired national objectives through the operation of monetary policy. Thus, it facilitates the pool of funds from surplus sector 10 of the economy to the deficit sector at a low interest rate (Ibrahim, 2016).
Prior to independence in 1960, there was no organized money market as whatever existed was linked to London based money market. This economy agent who had surplus funds than they required, had no market to invest them in Nigeria. Thereby, leading to capital flight in country, as these funds are only invested oversea. Thus, leaving Nigerian firms with no funds for investment and consequently hindering economic growth. Numbers of reason abound for the establishment of Nigeria money market. It includes the provision of short term funds, to the public and private institutions, that need such financing for their working capital requirements. It provides an opportunities to banks and non – bank financial institution to use their surplus funds profitably. Above all, efficient monetary system is achieved through central bank of Nigeria (CBN) control of the banking system via; money market.
According to Nwankwo (2009), when all other factors of production (land, labour, and entrepreneur) are held constant, the most important factor that can facilitate economic activities, investment initiatives, economic growth and development is finance. Finance is an important factor in any organization and many use the Nigerian Money Market as an avenue to get short term funds. The money market is a collection of financial institutions set up for the granting of short-term loans and dealing in short-term instruments that are readily convertible into cash, and whose maturity ranges between a few days to one year. The market provides ample opportunities for investors and corporate financial managers with surplus funds to lend at short term, thereby meeting the demands of borrowers who are in need of temporary finance for liquidity and can offer an acceptable claim to money (Omelomo, 2001). The importance of the money market to the growth and development of the Nigerian economy in general cannot be over-emphasized. This is because the market acts as intermediation to channel funds from the surplus side to the deficit side of the Nigerian population for short term investments mainly in trade and commerce. Thus, the development of the money market smoothens the progress of financial intermediation and boosts lending to economy (Ikpefan and Osabuohien, 2012).
Money markets play a key role in banks’ liquidity management and the transmission of monetary policy, control of money supply and demand-pull inflation, determination of short-run interest rate (Ekmekcioglu, 2013). The study of Kehinde and Adejuwon (2011) showed that money market is key to the development of the economy, therefore, the development of the money market is in stakeholders’ interests: the banking system itself, the Central Bank and the economy in general. In many developing countries such as Nigeria, the money market has lagged behind in performing its intermediation role of providing funds to deficit investors and this has further hampered economic growth and development. Ikpefan and Osabuohien (2012) stated that unlike in advanced economies where the money market constitutes the most institution for creating liquidity for government, companies and individuals, the Nigerian money market is inadequate and constrained by the absence of sub-markets and availability of adequate credit instruments required for the smooth operations of the market. This was further buttressed by Isedu (2005) who opined that the market has not succeeded in generating sufficient securities from companies and institutions while the range of securities available lack depth in terms of the volume and value of securities available.
1.2 Statement of Problem
Money market as the market for short term mobilization of funds has contributed enormously in the mobilization of investible funds from the surplus sector to the deficit sector. Like, every other market, Nigeria money market has not been fully explored to its full potential in achieving economic growth and development, owing to an inefficient institutional framework (Adegbite, 2007). The inability to provide efficient mechanism for determination of prices of securities and interest that can be based on the realities of supply and demand for funds, and their abilities to make available different and adequate instrument to the market.
It is important to note that, the strategies adopted by the money market in financial intermediation has not impacted on the economy at large successful, this is due to the fact that interest rate mechanism has not been fully enhanced in Nigeria economy. This is however reflected in the inability of many programmes establish by government to achieve their targeted goals, resulting from poor local participation by this federal government established economic programmes, with hope to foster economic and financial development, such Structural Adjustment Programme (SAP) 1986, Vision 2010, Vision 2020, Millennium Development Goal (MDGs), National Economic Empowerment Development Strategy (NEEDS), State Economic Empowerment Development Strategy (SEEDS), and other development plans.
The problem with money market and its role in accelerating Nigeria economic growth was clearly identified by Dabwor (2010) when he opined that money laundering and misappropriation of government funds puts “pressure on the money market as corrupt officials buys up foreign exchange for export”, thus leading to capital flight. The study of Edo and Okelegbe (2014) also showed that factors like misappropriation of funds and insider trading have been problems affecting the Nigerian money market while corruption of the system was seen by them as the biggest problem facing the market that even transparency is unable to fix due to lack of quality corporate governance. They posited that if the system was working as it should, the impact on economic growth would be positive in that the economy could recover and support the nation. Much have been said and written about the Nigerian capital market but the reverse is the case for the money market in the country. Edo and Okelegbe (2014) argues that market is not allowed to operate independent of regular government interference. However, many studies on this topic often exclude government instruments in the market like, treasury bills in their investigation, which is seeing as one of the dominant player in the market. This research aims to close this gap in knowledge, by including government Treasury bill in the study.
1.3 Research Question
In the course of this research work, the following research question will guide the study;
- To what extent does money market impact Nigeria economic growth?
- Is there significant longrun relationship between money market and Nigeria Economic growth?
1.4 Objectives of the Study
This research work aimed at assessing the impact of Nigeria money market in accelerating Nigeria economic growth and development. The objectives will include:
- To empirically investigate the relationship between Nigeria money market and Nigeria economic growth.
- To examine if there is longrun relationship between money market and Nigeria economic growth.
1.5 Research Hypothesis
The research on the impact of Nigeria money market on economic growth has led the following hypothesis:
Ho: Nigeria money market has no significant impact on economic growth of Nigeria.
HI: Nigeria money market has no significant longrun relationship with economic growth in Nigeria.
1.6 Significance of the Study
This study on the impact of Nigeria money market on the economic growth of Nigeria will be of great value to the general public. Its finding will be useful to government and its agencies, monetary authorities, banks and other financial institutions. Others include:
- Business men, investors and individuals who are interested about the working of the market.
- Also, the study will be of great importance to other researchers interested in this field of study.
1.7 Scope and Limitation of Study
This research study is designed to investigate the effectiveness of money market in ensuring economic growth in Nigeria economy, covering the period of 1981 – 2016. With special emphases on the money market and its numerous instruments employed.
However, the study no doubt will be constrained by number of factors to include; inadequate/reliabilities of data, as data over a particular phenomenon often varies from different source, thereby leading to inconsistent data. Others are: Financial and time constraints that abound in the study making it default to give a better work than this one.
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