Financial Deepening and Sustained Economic Growth in Nigeria

Abstract

The growth-finance nexus in Nigeria is investigated in this research. Prior studies used time-series data and classical linear regression mainly, as well as various financial deepening indexes and methodologies. These studies produced a mixed bag of results. This study is unique as it adopts quarterly data from the three arms of the financial industry (banks, stock markets, and insurance companies) which most previous studies neglected to focus solely on the banking sector. The Autoregressive Distributed Lag (ARDL), Error Correction Model, and the Granger causality test were used to examine the convergence and divergence technique. Prior researches overlook a variety of pre-and diagnostic tests. The findings revealed a long-short run co-integrating nexus. Financial indices respond to economic growth in a linear fashion. The insurance industry has a 28% impact on economic growth. The short-run finding demonstrates a 74% speed of convergence from explanatory variable-induced disequilibrium to long-run equilibrium. Economic growth reacts more quickly to the financial climate's shocks and dynamics. A bi-directional association was discovered using causality testing. Recapitalization of the banking and insurance sectors, as well as a review of the Monetary Policy Rate to enhance lending to the private sector and boost savings and investment, is among the recommendations.

Finance-Growth Nexus in Bangladesh: Is it Important to Quantify Financial Development?

“…The importance of the financial industry's growth for the overall progress of the economy, particularly credit circulation in the private sector and the beneficial influence of gross domestic savings and investment, has been highlighted in the study. Edet [26] and Udoh et al [27] conduct two distinct studies, revealing a significant relationship between financial development and economic growth and a bi-directional causal relationship between the two. Along the lines of previous studies, a parallel analysis by Ang [28] also identifies finance as the foremost determinant for driving growth in Malaysia, and acknowledges private savings and investment as two essential elements influencing growth.…”