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FINANCIAL DEEPENING, FINANCIAL SYSTEM FRAGILITY AND ECONOMIC GROWTH IN NIGERIA
Abstract
Since the 2007/2008 Global Financial Crisis, there has been renewed interest in re-assessing the implications of financial development, specifically, financial deepening, on the financial system and the overall economy. Given that financial inclusion is a major crux of the Central Bank of Nigeria’s (CBN) policies targeted at the financial sector, it became imperative to investigate this nexus for Nigeria. Utilising quarterly data from 2007Q1-2018Q4, this study employed a non-linear co-integrating ARDL model in assessing the relationship between financial deepening, financial fragility and economic growth in Nigeria. Findings suggest the existence of a positive relationship between financial deepening and growth, but a non-linear relationship between financial system fragility and economic growth. The study recommends that the CBN should identify high-risk sectors, with the aim of encouraging banks to reduce lending to them, while working with the Securities and Exchange Commission (SEC) to provide sector-product-backed securities to enhance funding to those sectors.
Keywords: Economic Growth, Financial Deepening, Financial System Fragility, Non-Linear
Autoregressive Distributive Lag Model