The state's role in promoting Nigerian financial development and economic growth

Purpose - – The purpose of this study is to propose a framework for conceptualizing the finance-growth theory in developing economies. Design/methodology/approach - – The study uses a cointegration and error correction model to investigate the possible influence of key socio-political characters of a state on the causal relationship between financial development and economic growth. A developing economy (Nigeria) which had experienced decades of autocratic military governance was studied. Three characters of the state (ethnicity, civil war and military governance) were derived from a historical review and were introduced into the cointegration analysis as dummy variables. Findings - – Evidence of a causal relationship was found to exist from financial development to economic growth and the characters of the state were found to have no significant impact on this relationship. Research limitations/implications - – The research limitations were based on the reliability of data recorded between 1960 and 2007. Practical implications - – This study is practical from the point of view of the integration of qualitative social disturbances into a quantitative model targeted at exploring the practical developmental impact these disturbances may have had and continue to have on economic growth. Social implications - – The social implication of this study stems from the impact that adverse socio-political influences may have on financial development and economic growth. Originality/value - – This is an original piece of research focused at understanding the unique social, political and macroeconomic circumstance of a strategically relevant developing economy.