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Output Volatility in Nigeria: Does Financial Development Absorb Trade-Led Shocks?

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  • Chima Igwe-Kalu
  • Barnabas Olusegun Obasaju

Abstract

Purpose: The aim of this paper is to empirically determine the stance of the Nigerian financial sector in absorbing or intensifying trade shocks. Design/Methodology/Approach: Towards achieving this objective, the study uses Auto-Regressive Distributed Lag (ARDL) technique to analyse annual data from 1981 to 2017. Data used in this study were sourced from Central Bank of Nigeria Statistical Bulletin and Statista. Findings: Major finding from the long-run result shows that financial development intensifies trade-led shocks, there by yielding to output volatility. Practical implication: Based on findings, the study recommends the Nigerian government to focus on the achievement of greater and more inclusive financial development. This can be achieved through; increasing the availability and affordability of financial services, easing access to loans, improving soundness of banks and fostering legal traditions that protect creditors and investors. Originality/Value: In addition to the lack of available literature with focus on this subject in the Nigerian sphere, understanding the role of Nigerian financial sector in absorbing trade-led shocks is fundamental in optimizing Nigeria’s benefits from trade. This is of utmost importance, particularly in a time where the nation just signed the Africa Continental Free Trade Agreement.

Suggested Citation

  • Chima Igwe-Kalu & Barnabas Olusegun Obasaju, 2020. "Output Volatility in Nigeria: Does Financial Development Absorb Trade-Led Shocks?," International Journal of Finance, Insurance and Risk Management, International Journal of Finance, Insurance and Risk Management, vol. 10(2), pages 66-78.
    • Handle: RePEc:ers:ijfirm:v:10:y:2020:i:2:p:66-78
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    More about this item

    Keywords

    Financial development; trade shocks; output volatility; Nigeria; ARDL.;
    All these keywords.

    JEL classification:

    • G00 - Financial Economics - - General - - - General
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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