Financial Development And Its Role In Driving Economic Growth In Nigeria
DOI:
https://doi.org/10.64137/31079385/IJMHSS-V2I1P104Keywords:
Financial Development, Economic Growth, Credit To The Private Sector, Number Of Banks, Monetary Policy RateAbstract
This study investigated the effect of financial development on economic growth in Nigeria from 1984 to 2024. Financial development was measured by the number of banks, credit to the private sector, monetary policy rate, and gross fixed capital formation, while economic growth was measured by real gross domestic product. The variables were subjected to unit root test using the Augmented Dickey-Fuller (ADF) and Phillips-Perron (PP), and the result showed that all the variables were stationary at the first difference. Johansen co-integration was employed, and the result denoted that there was a significant long-run relationship between the variables. The Vector Error Correction model was employed for data analysis, and inferences were made at 5% significant level. The regression result showed that monetary policy rate had a negative significant effect on economic growth in the short-run while in the long-run, it had a positive significant effect. Furthermore, the number of banks and credit to the private sector had a significant and positive effect on economic growth in Nigeria in the long-run. The study concludes that the number of banks, credit to the private sector, and monetary policy rate spur growth in the long-run in Nigeria. Therefore, the study recommends that the Nigerian government should improve efficiency in the banking sector and ensure better allocation of credit to productive sectors like agriculture, SMEs, and manufacturing, and reduce lending constraints.
References
[1] Z. Abbas, G. Afshan, and G. Mustifa, “The effect of financial development on economic growth and income distribution: an empirical evidence from lower-middle and upper-middle-income countries,” Development Studies Research, vol. 9, no. 1, pp. 117–128, Apr. 2022, doi: https://doi.org/10.1080/21665095.2022.2065325.
[2] O. E. Adekunle and A. Yetunde Tonia, “Financial sector development and economic growth in Nigeria,” Jurnal Inovasi Ekonomi, vol. 9, no. 01, pp. 25–32, Jun. 2023, doi: https://doi.org/10.22219/jiko.v9i02.22537.
[3] O. T. Ayorinde, “Monetary policy, capital formation and economic growth in Nigeria: Evidence from the ARDL model,” International Journal of Research and Innovation in Social Science, vol. 8, no. 8, pp. 1880-1894.
[4] C. Brooks, “Introductory Econometrics for Finance,” Mar. 2019, doi: https://doi.org/10.1017/9781108524872.
[5] Central Bank of Nigeria, Statistical Bulletin, 2024.
[6] M. Ibrahim, and M. Al-Naim, “Financial development, economic growth and environmental sustainability in Africa: Evidence from heterogenous panel models,” Journal of African Economic Studies, vol. 16, no. 1, pp. 55-73, 2024.
[7] C. Mlambo, “Financial development and economic growth in Africa: Evidence from dynamic common correlated effects (DCCE) estimation,” Journal of African Economic Studies, vol. 12, no. 1, pp. 102-120, 2024.
[8] P. K. Narayan, “The saving and investment nexus for China: evidence from cointegration tests,” Applied Economics, vol. 37, no. 17, pp. 1979–1990, Sep. 2005, doi: https://doi.org/10.1080/00036840500278103.
[9] H. T. Patrick, “Financial Development and Economic Growth in Underdeveloped Countries,” Economic Development and Cultural Change, vol. 14, no. 2, pp. 174–189, Jan. 2020, doi: https://doi.org/10.1086/450153.
[10] M. H. Pesaran, Y. Shin, and R. J. Smith, “Bounds testing approaches to the analysis of level relationships,” Journal of Applied Econometrics, vol. 16, no. 3, pp. 289–326, 2001, doi: https://doi.org/10.1002/jae.616.
[11] S. N. Weli, E. J. Okereke, and I. S. Nnamdi, “Financial development and economic growth nexus in Nigeria and South Africa: A time-series econometric analysis,” Journal of Economics and Finance Studies, vol. 14, no. 2, pp. 85-101, 2019.
[12] World Bank, World Development Indicators, International Economics Department. Development Data Group, and World Bank,” 1978.
[13] A. Pandiammal, and K. Iyna, “The Causality between FII and BSE in India,” International Journal of Applied Social Science, vol. 6, no. 6, pp. 1357-1361, 2026.
