Journal of Economics, Management and Trade

Stock markets provide important source of investment capital at relatively low cost. A well-functioning and liquid stock market helps investors to reduce unsystematic risk and increase the marginal productivity of capital. Developed credit market improves the efficiency of investments and resource use thereby contributing to higher economic growth and development of a nation. Unfortunately foreign private inflows in Nigeria are direct contributions by large parent-multi-national to their subsidiaries that dominate the oil and communication industries. Thus, institutional investors in Nigeria suffer dearth of investible surpluses characterized by inefficient investment and consequently is unable to match her huge export earnings with appreciable level of development.  Investment efficiency is necessary for resources to be channeled to core growth activities of the private sector. This paper therefore examines the relationship between credit market development and investment efficiency in Nigeria using standard econometric methods of error correction mechanism. The results show at 5% level of significance that there is inverse and significant relationship between investment efficiency and interest rate in agreement with Keynesian theory of investment and provide evidence for the existence of a negative relationship between investment efficiency and trade openness to credit market development in Nigeria. It is recommended that interest rate management be used to promote investment efficiency, motivate savings and provide credits for investors at a competitive price. Perhaps a re-emphasis on use of cost and social benefit analyses for evaluation of investment will not be out of place.