GLOBALIZATION AND STOCK MARKET GROWTH 

ABSTRACT

This study has undertaken a comprehensive investigation of the relationship between globalization and stock exchange growth using data from the Nigeria Stock Exchange and Central Bank of Nigeria from 1980 to 2011. The study combined the ordinary least square statistical technique and the more sophistical Autoregressive/distributive lag modeling. We observed that both in the short and long run exchange rate and interest rate are not statistical significant though they are both negatively related to market capitalization. It was also established that a temporal stock in the economy will return foreign direct investment has a statistical significant relationship with market capitalization in both the short and long run.

CHAPTER ONE:

1.1       Introduction                                                                                      

1.2       Statement of the Problem                                                                   

1.3       The Research Objective                                                                      

1.4       The Research Hypothesis                                                                    

1.5       Scope of the Study                                                                             

1.6       Significance of the Study                                                                  

Introduction                                                                                                    

2.1       Empirical studies on liberalization and stock market development                                                                           

2.2       The need for Regulations                                                                    

2.3       Nigerian Stock Market performance indicators                                  

2.4       Role of Capital Markets in mobilization of domestic and External Resources for development                                           

2.5       Fundamentals of Financial market Development                               

2.6       Support Services needed for Efficiency of Capital markets                                                                                                

2.7       The Entrepreneur in Africa in Development of capital markets                                                                                                

2.8       Challenges and Opportunities facing Africa in Developing effective capital markets                                                             

 CHAPTER THREE

Theoretical Framework and Model Specification

3.1       Theoretical framework                                                                        

3.2       Model specification                                                                          

3.3       Variables in the model capital market development                         

3.4       Capital market liquidity                                                                      

3.5       Fixed capital income ratio                                                                   

3.6       Trade openness                                                                                   

CHAPTER FOUR

Empirical Analysis

Introduction

4.1       Unit root analysis                                                                                

4.2       Cointegration analysis                                                                         

4.3       The error correction mechanism                                                          

CHAPTER FIVE

Summary, Conclusion and Recommendations

5.1       Summary of research findings                                                            

5.2       Conclusion                                                                                          

5.3       Recommendations                                                                              

            Bibliography                                                                                       

            Appendices                                                                                         

LIST OF TABLES

4.1:      Unit root test for variables in levels                                                    

4.2:      Unit root test for variables in first Difference                                    

4.3:      Results of Engle and Grander residual based cointegration tests      

4.4:      The short-run dynamic model for domestic private investment         

CHAPTER ONE

INTRODUCTION

1.1       BACKGROUND TO THE STUDY 

The concept of tax incentives on industrial development and economic growth has received considerable attention in recent time. Taxation is very fundamental to sustainable development and the growth of emerging economies especially where natural resources are relatively scarce. Tax is a compulsory extraction of money by a public authority for public purposes and taxation is a system of raising money for purpose of governance by means of contribution from individuals or corporate body (Sayode & Kajola 2006).  Taxation, according to Aguolu (2004) is a compulsory levy by government through its agencies on the income, consumption and capital of its subjects. These levies are made on personal income, such as salaries, business profits, interests, dividends and royalties. It is also levied against company’s profits, petroleum profits, capital gains and capital transfer. Ojo (2008) opined that taxation is a concept and the science of imposing tax on citizens. He further explains that tax is a compulsory levy which is required to be paid by every citizen. The government uses taxation to stimulate the economy by using tax policy to influence purchasing power and production costs (Ariwodola, 2001). The study of taxation has become increasingly sophisticated especially during the past decade and have yielded conflicting results as regards the tax matter. Some studies focus on the cost and benefit of tax incentives while a few look at whether tax incentives were economically justified. Tax studies offer little guidance to policy makers who are concerned about tax rates or tax offerings and the effectiveness of employing tax incentives as an economic and developmental tool. The mode by which industrial development and economic growth can be effectively, efficiently, stimulated and developed is very demanding. As a result of this, the government charges less tax and gives tax holidays in order to encourage investments and economic activities in those areas which help to improve production capabilities, activate economic growth as well as the allocation of resources in a socially desirable manner. In Nigeria today, as part of the effort to provide an enabling environment that is conducive to the growth and development of industries, inflow of foreign direct investment (FDI), and stimulate the expansion of domestic production capacity; the Federal Government of Nigeria has developed packages of incentives for various sectors of the economy. These incentives, is hoped will help revive the economy, accelerate growth and development and reduce poverty. These incentives, generally referred to as tax incentives is defined by the UNCTAD (2000), as any measurable advantages accorded to specific enterprises or categories of business by (or at the direction of) a Government, in order to encourage them to behave in a certain manner, in Steven & Ana (2007) words, tax incentives is any incentives that reduces the tax burden of enterprises in order to induce them to invest in a particular project or sector of the economy. Tax incentives are basically designed to attract new investment into the country and to expand existing ones in prior industries which is based on the country development plan capable of stimulating economic growth. Ifuek (2009) describes tax incentive as special arrangement in tax laws to: stimulate growth in specific areas, attract, retain or increase investment in a particular sector, assist companies or individuals carrying on identified activities. They include measures specifically designed either to increase the rate of return of a particular sector, or to reduce (or redistribute) its cost or risks.

1.2              STATEMENT OF THE RESEARCH PROBLEM

The use of tax incentive in developing countries has been controversial for decades. Empirical studies have shown different views on tax incentives as a catalyst for economic growth and industrial development. A school of thought like Sanni (2002) believes that tax incentive encourages economic growth and industrial development. While others believe that it reduces revenue accruable to the government. Most tax experts, consultants, Individuals and economic analysts also criticize the tax incentive for the following reasons:                        

 1.        That the impacts of the incentives are not effective in the economy.           

2.         That the exemption privilege not granted to firms, places some companies at a competitive advantage over others.

 3.        That the incentive granted are not adequate for developmental and industrial growth.       

4.         Most management of firms, companies and industries lack the awareness of the incentive.

5.         The unwillingness of some companies and individuals to claim the incentive because they do not understand the role of such.

            The problem of this research therefore is to analytically examine the impact of tax incentives on the development of companies and economic growth in Nigeria.

In order to actualize the desired objectives of this research some basic research questions are fielded. The questions in specific terms include:                                                                     

1.         Do tax incentives received by firms lead to industrial development in Nigeria?

2.         To what extent do tax incentives received by firms lead to economic development in Nigeria?                                                                             

3.         Do tax incentives pave way for local industries to compete with their foreign counterparts in Nigeria?

1.3       OBJECTIVES OF THE STUDY

  The broad objective of this study is to examine the impact of tax incentive on the Nigerian economy. In specific terms the research objectives are:

1.         ascertain if tax incentives received by firms lead to industrial development in Nigeria?                                                                                                      

2.