Read Online

Download PDF (EN)

Abstract

This paper examines the impacts of financial development on Nigeria’s economic growth between 1981 and 2018. There are broadly two views on the impacts of financial development on economic growth in the literature. The views are supply leading and demand following hypotheses. However, the study adopts supply leading view and the ARDL bound testing approach is employed to test the hypothesis. The key variables are per capita GDP and financial development measured by the ratio of broad money to GDP (DEPTH), ratio of private credit to GDP (PRIVY) and the ratio of commercial bank asset to the sum of commercial bank asset and the Central Bank asset (BANK). Investment is used as the control variable and the effects of the global economic meltdown on the Nigeria’s economy are captured by a dummy variable. The results of the bound test cointegration show that there exists a long-run relationship among the variables and the long-run model shows that BANK and PRIVY have positive effects on Nigeria’s economic growth while DEPTH has a negative effect on economic growth. This indicates that the effect of financial development on economic growth in Nigeria is sensitive to measurement of financial development. As expected, investment has a positive effect on economic growth while the meltdown as measured by the dummy has a significant negative effect on the economic growth. It is therefore recommended that the government should look inward and diversify the economy in order to mitigate the effect of external shocks on Nigeria’s economy.