Effects of Financial Market Intermediation on Economic Growth in Nigeria

As the competitiveness of the banking sector has a direct effect on the steady state growth rate, through a process of well-functioning educational system, it is expected that capital market sector responds positively to steady economic growth. This is a puzzle that this study identified and put into empirical test. Data on financial market intermediation (as measured by market capitalization, money supply, credit to the private sector, and total reserve) and economic growth (as measured by Real GDP) were obtained from a secondary sources, namely the Central Bank of Nigeria Statistical Bulletin (2017), National Bureau of Statistics (2017) and World Bank Development Index. The study therefore applied stationarity tests (Augmented Dickey Fuller and Phillip Perron) and structural vector autoregressive (SVAR) as analytical techniques in a bid to examine the effects of financial market intermediation on economic growth in Nigeria over a thirty-seven (37)-year period, from 1981 to 2017. Based on the evidence of statistical result, it was established that the estimated parameters attained stationarity at first difference, that is, I(1), the result further expressed that market capitalization has a positive and significant effect on economic growth (z=26.62778; p0.05); money supply has a positive and significant effect on economic growth (z=4.914683; p0.05); credit to the private sector has an inverse and significant effect on economic growth (z=2.707756; p0.05); and lastly, the result disclosed that total reserve has a negative and significant effect on economic growth in Nigeria (z=12.63565; p0.05). According to the study, financial market intermediation has a significant impact on economic growth in Nigeria and can be used to predict economic growth in the Nigerian economy as in other developing economies of the world. The policy implication in the study is that governments need to intensify effort to ensure appropriate policy mix for harmony and proper coordination of economic policies and greater attention directed to money supply that is, greater emphasis should be on the improvement of monetary policies, instruments and institutions in Nigeria to ensure effective and efficient monetary system. The study also implies that government need to strengthen capital market the more in order to remain competitive.