Financial Sector Development-Economic Growth Nexus: Empirical Evidence from Nigeria
Emeka Nkoro, Aham Kelvin Uko

There has been controversy whether financial sector development constitutes a potentially important mechanism for long run economic growth. Thus, the study empirically examines the financial sector development-economic growth nexus in Nigeria. In doing this, the study employed the cointegration/Error Correction Mechanism (ECM) with annual dataset covering the period, 1980-2009. Five variables, namely; ratios of broad money stock to GDP, private sector credit to GDP, market capitalization-GDP, banks deposit liability to GDP and Prime interest rate were used to proxy financial sector development while real gross domestic product proxy growth. The empirical results show that there is a positive effect of financial sector development on economic growth in Nigeria. However, credits to private sector and financial sector depth are ineffective and fail to accelerate growth. This signifies the effect of government borrowings, the problem of huge non-performing loans, and a deficient legal system on the private sector. These inefficiently and severely limit the contribution of Nigeria’s financial sector development to economic growth. To sustain and enhance the existing relationship between financial sector development and economic growth in Nigeria, there is need to adequately deepen the financial system through innovations, adequate and effective regulation and supervision, a sound and efficient legal system, efficient mobilization of funds and making such funds available for productive investment and improved services.

Full Text: PDF

Copyright © 2014: The Brooklyn Research and Publishing Institute. All Rights Reserved.
Brooklyn, NY 11210, United States