Financial Deepening and Economic Growth in Nigeria

Abstract

This study examined the relationship between financial deepening and economic growth in Nigeria for the period 1981 to 2023. Specifically, the study examined financial deepening depth indicators such as; money supply ratio, credit intermediation ratio, savings intermediation ratio and market capitalization ratio to test their effects on gross domestic product of the Nigerian economy using data from Central Bank of Nigeria Statistical Bulletin. Descriptive Statistics, Augmented Dickey Fuller unit root test, cointegration test and error correction techniques were used to analyze the data. The cointegration test indicates the presence of a long run relationship among variables. The short run dynamics test reveals that, credit intermediation ratio exhibits strong positive impact on gross domestic product at lag 1 to lag 3, market capitalization ratio exhibits strong negative impact on gross domestic product at lag 2. Savings intermediation ratio shows positive but weak impact on gross domestic product while money supply ratio exhibits negative weak impact on gross domestic product at lag 2 but exhibits weak positive impact at lag 1 and 3, showing some level of system instability. Based on the study results, we concluded that, credit intermediation ratio is the most significant predictor of economic growth in Nigeria for the period. The study therefore, recommends that Private sector investment should be encouraged by reducing lending charges on loan facilitates to investors, as these can create an expansionary impact on investment as well as increasing the nation‘s output. Also, commercial banks should make deliberate efforts to expand their savings mobilization by creating banking awareness to the people living in rural communities, increased real interest rate on fixed deposits with a view to encourage savings, as these can increase investment as well as the nation‘s output.

Keywords

• Economic Growth
• Financial Deepening
• Cointegration
• Nigeria

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