An Assessment of the Effect of Financial Sector Development on Growth and Unemployment in Nigeria: 1986-2012

Abstract

Parts of the major macroeconomic objectives of any nation are attaining high growth and employment rates. However these constitute major challenges in Nigeria as economic growth has either remained stunted or stagnant and unemployment rate very high. The financial sector is expected to push up the real sector thereby lowering unemployment rate. It is within this supply leading hypothesis that this work is situated. The 3 Stage Least Square method was used in estimating the Growth and Unemployment macroeconomic equations. The results showed that interest rate and exchange rate have effects on growth but only exchange rate was statistically significant. This seems to suggest that there is a disconnection between the Nigerian money market and the real sector. However interest rate and exchange rate were significant in influencing the rate of unemployment in Nigeria. The goodness of fits for each of the two equations was high. The simulation results showed that the shock in the financial sector has serious implications for the economic growth and unemployment. The work therefore suggests that interest rate and exchange rate should not be left absolutely to the dictate of the market forces. Occasionally government should intervene in these markets as the time requires.

Nexus between Financial System Development and Economic Performance of Developing Economies: Perspective of the Nigerian Economic Growth

“…Ismail, Ab the economic growth of nations is largely dependent on a financial system which is largely built on stable financial development policies. Omofa (2017) avers that financial sector development affects economic growth by lowering transaction cost, providing information from savers to borrower, providing corporate governance; and encouraging specialization through its exchange function. The trend of financial system development and Nigerian economic growth was presented in Figure 1 below.…”

“…Theoretically, supply leading and system development and economic growth. Demand following contends that finance is led, rather than leads economic growth, while supply leading contends that financial sector develo (Chandrashekar, Sampath and Chittedi, 2018) valuation, risk management, management control and so on (Omofa, 2017). It also a response (Patrick, 1966in Vieito and Wong, 2018Chow, Vieito and Wong (2018, supply leading relation, on the other hand, posits a causal relationship.…”

“…Ismail, Ab-Rahim and Pei the economic growth of nations is largely dependent on a financial system which is largely built on stable financial development policies. Omofa (2017) avers that financial sector development affects economic growth by lowering providing information from savers to borrower, providing corporate governance; and encouraging specialization through its exchange function. The trend of financial system development and Nigerian economic growth Figure ICAL Presentation of Financial System Development Index (FDI) and the Real GDP in Nigeria, 1990-2020 1 above depicts no linear relationship between financial system development index (FDI) and domestic product (RGDP).…”

“…Demand following contends that finance is led, rather than leads economic growth, while supply leading contends that financial sector development is a necessary pre-condition for economic growth Chandrashekar, Sampath and Chittedi, 2018). The development of the financial sector covers savings collection, project valuation, risk management, management control and so on (Omofa, 2017). It also aims to stimulate an entrepreneurial response (Patrick, 1966 in Vieito andWong, 2018) in these modern sectors (Roger et al 2005in Omofa, 2017.…”

“…The development of the financial sector covers savings collection, project valuation, risk management, management control and so on (Omofa, 2017). It also aims to stimulate an entrepreneurial response (Patrick, 1966 in Vieito andWong, 2018) in these modern sectors (Roger et al 2005in Omofa, 2017. As per Chow, Vieito and Wong (2018), supply leading relation, on the other hand, posits a causal relationship.…”