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YOU ARE HERE: ECONOMIC WATCH

STIMULATING ECONOMIC GROWTH THROUGH THE DEVELOPMENT OF EFFICIENT CAPITAL MARKETS

Stimulating economic growth through the development of efficient capital markets
WEDNESDAY, 18 APRIL 2012 00:00 PYEMO AFEGO

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The role of financial intermediation in the economic growth process was recognised as far back as the 17th century when Walter Bagehot, in his classic Lombard Street, argued that it was England’s efficient capital markets that made the industrial revolution possible. Centuries later, modern day economists hold largely the same view that access to investment capital, through well functioning financial markets, is crucial for growth and development, particularly in capital-scarce developing countries. They maintain that stock markets facilitate the pricing and diversification of risk, aid in the price-discovery process of financial assets and enhance the operations of the domestic financial system.

Nigerian Stock Exchange (NSE) building

By mobilising savings from surplus pending economic units to the deficit spending units, a capital market provides avenues for effective and optimal utilisation of funds for long-term investment purposes. In addition, capital markets encourage the inflow of foreign capital by creating a platform for foreign companies or investors to invest in domestic securities; provide needed seed money for capital development; and act as a reliable medium for broadening the ownership...