FINANCIAL SECTOR DEVELOPMENT AND ECONOMIC GROWTH IN NIGERIA: AN EMPIRICAL RE-EXAMINATION

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FINANCIAL SECTOR DEVELOPMENT AND ECONOMIC GROWTH IN NIGERIA: AN EMPIRICAL RE-EXAMINATION

Abstract

This study investigated the impact of the nancial sector development on economic growth in Nigeria, by looking at the independent contributions of the money, capital and foreign exchange markets to the growth of the economy, using quarterly data between 2000Q1 and 2019Q4.  The results  indicated that while nancial deepening, banking system liquidity and all share index had positive and signicant impact on the growth of real output in the long-run, the behaviour of exchange rate spread was consistent with falling levels of real output growth. It is therefore recommended that the growth of the money and capital markets be prioritised by macroeconomic managers in Nigeria to improve the level of economic growth. More specically, the monetary authority should adjust her policy rates and other instruments of monetary policy, such as the cash reserve ratio, to increase the level of banking system liquidity. This will increase banks’ lending capacity to the private sector, with the benet of increasing economic growth in Nigeria.  

Keywords: Financial Development; Money, Capital and Foreign Exchange Markets; Economic Growth; Bounds Testing