Impact of Capital Market Financing on the Nigerian Manufacturing Sector Growth

Sebastian O. Uremadu & Odom C. Pantaleon

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Abstract

This study examined the impact of capital market financing on the Nigerian manufacturing sector growth. The study captured capital market financing with equity financing, debt financing, foreign direct investments (FDIs) and market capitalization as explanatory variables, while foreign exchange rate and foreign portfolio investments (FPIs) were used as control variables. Manufacturing sector growth was measured by manufacturing sector value added (MVA). The study adopted an ex-post facto research design. To estimate the impact of capital market financing on manufacturing sector growth, the study employed and modified the supply-leading hypothesis, to capture variables of interest using secondary sources of data in the form of annual data that spanned the period (1981-2022). The study used the Autoregressive Distributed Lag (ARDL) model for its estimation. From the estimations, it was observed that a long-run relationship existed between the independent variables and the dependent variable using the ARDL bounds test procedure. Also, the long-run estimation results showed that equity financing and FPIs had a positive and insignificant impact on MVA, indicating an increase but little impact of equity financing and FPIs on manufacturing sector growth. However, debt financing and exchange rate exerted a positive and significant impact on MVA in the long run, implying an increasing and considerable impact on manufacturing sector growth. However, FDI had a negative and significant effect on the MVA of the Nigerian economy, indicating that FDI caused the manufacturing sector to decrease. Debt financing, in the long run, had a positive and significant impact on manufacturing sector value added, meaning that debt financing exerted an increasing impact on manufacturing sector growth. Hence, from the findings of the study, capital market financing was a good policy option for manufacturing growth in Nigeria.

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