Causality between Financial Deepening and Economic Growth in Nigeria: Evidence from a Bootstrap Rolling Window Approach

Abstract

been implemented in an attempt to integrate financial services into growth objectives in Nigeria. Further, the global financial crisis has illustrated the potentially disastrous consequences of weak financial sector policies for financial development and their impact on the economic outcomes. The crisis has challenged conventional thinking in financial sector policies and has led to much debate on how best to achieve sustainable development. Nigerian financial market has been noted to be one of the largest in Sub-Saharan Africa with regard to diversity of institutions and instruments (3). The Nigerian financial system can be broadly divided into two sub-sectors, namely: the informal and the formal sectors. The informal sector comprises the local money lenders, the thrifts, savings associations, etc. This component is poorly developed, limited in reach, and not integrated into the formal financial system. The formal financial system on the other hand can be further sub-divided into capital and money market institutions. It is made up of the banks and non-bank financial institutions. The system became liberalized in the 1980s when the structural adjustment program me was introduced. The system has undergone significant changes in terms of the policy environment, number of institutions, ownership structure, depth and breadth of markets, as well as in the regulatory framework. The financial system comprises of the central bank, commercial banks, mutual funds, brokerage firms, discount houses, and stock exchange, to mention just few. These institutions trade in financial instruments such as domestic currency, foreign currency,