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Financial Deepening and Economic Growth in Nigeria (1986 – 2022)

Author

Listed:
  • Faith Okete

    (Department of Banking and Finance, Madonna University Nigeria)

  • Okuma N. Camillus, PhD, LLB

    (Department of Banking and Finance, Madonna University Nigeria)

Abstract

This paper examined the financial deepening on economic growth in Nigeria. Adopting the supply-leading hypothesis using variables such as money supply, credit to private sector, inflation rate, market capitalization and prime lending rate as proxies for financial deepening and real gross domestic product growth rate for economic growth, we found that credit to private sector and market capitalization promote economic growth in Nigeria while money supply, inflation rate and prime lending rate did not within the period studied (1986-2022). Expanding the financial sector allows financial intermediaries to carry out functionalities of deploying, aggregating and directing a country’s savings into an investment which contributes to domestic progression. Data was obtained from CBN bulletin different issues and analyzed using Autoregressive Distributed Lag. From the result of analysis, we found out that long run relationship existed but no regressor was found to be significant. Credit to the private sector and market capitalization to RGDP had positive relations with economic growth, whereas money supply, inflation rate and prime lending rate to GDP had positive relations with economic growth rate. Government policy should therefore be geared towards strategically increasing money supply and promoting efficient capital market that will enhance overall economic efficiency, create and expand liquidity, mobilize savings, enhance capital accumulation, transfer resources from traditional sectors to growth inducing sectors (such as manufacturing and industry, agriculture and the services sectors) and also promote competent entrepreneurial response in various sectors of the economy. Policies favoring credit lending to the private sector should be encouraged by stakeholders in the economy, for instance, higher savings interest rates would encourage more savings. Raising the interest provided to depositors on their savings will serve as a perk to attract customers to save more money with commercial banks, savings and borrowing for investments will be encouraged as a result.

Suggested Citation

  • Faith Okete & Okuma N. Camillus, PhD, LLB, 2024. "Financial Deepening and Economic Growth in Nigeria (1986 – 2022)," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 8(11), pages 204-216, November.
    • Handle: RePEc:bcp:journl:v:8:y:2024:i:11:p:204-216
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    References listed on IDEAS

    as
    1. Vipin Ghildiyal & A.K Pokhriyal & A.K Pokhriyal & Arvind Mohan, 2015. "Impact of Financial Deepening on Economic Growth in Indian Perspective: ARDL Bound Testing Approach to Cointegration," Asian Development Policy Review, Asian Economic and Social Society, vol. 3(3), pages 49-60.
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    5. Anthony Orji & Jonathan E. Ogbuabor & Onyinye I. Anthony-Orji, 2015. "Financial Liberalization and Economic Growth in Nigeria: An Empirical Evidence," International Journal of Economics and Financial Issues, Econjournals, vol. 5(3), pages 663-672.
    6. Tari Moses Karimo & Oliver Ejike Ogbonna, 2017. "Financial Deepening and Economic Growth Nexus in Nigeria: Supply-Leading or Demand-Following?," Economies, MDPI, vol. 5(1), pages 1-18, January.
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