Has Financial Liberalisation Promoted Economic Growth in Nigeria? Evidence from Auto-Regressive Distributed Lag (ARDL) Approach

This study attempted to ascertain whether or not financial liberalisation policies promoted economic growth in Nigeria for the period spanning 1986 –2014, using Auto-regressive Distributed Lag (ARDL)-bounds testing approach and unrestricted error correction model (UECM) to cointegration analysis. Macroeconomic time series data were obtained from Central Bank of Nigeria (CBN) Annual Statistical Bulletins, National Bureau of Statistics (NBS) Bulletins, and World Bank Development Indices. Three alternative measures of financial liberalisation (FINDEX1, FINDEX2, FINDEX3) and six intervening variables were incorporated into the study. The empirical findings show that the impact of financial liberalization on economic growth varied for different measures of financial liberalization undertaken; and were significant both in the short run and the long run: FINDEX1 promoted economic growth significantly, and corroborates the growth-stimulating effect of financial liberalization; while FINDEX2 and FINDEX3 exerted significant negative impacts on economic growth. Real exchange rate, degree of openness, consumer price index, increase in life expectancy of labour, and debt service ratio significantly influenced economic growth in the short run and long run. None of the measures of financial liberalisation Granger-caused economic growth, but a one-way causation ran from FINDEX2 to FINDEX1, and from FINDEX3 to FINDEX1.The study recommends increased financial deepening, reduction of lending rates, removal of bottlenecks in the banking and stock markets institutions in Nigeria.