Does Financial Structure Matter for Economic Growth: Evidence from Nigeria

Abstract

This paper examines specifically the impact of financial structure on long-run economic growth in Nigeria, using time serial data for 16 year period: 1992 – 2006. The Ordinary Least Square multiple regression was used to estimate the necessary models. The gross domestic product per capita growth was adopted as the dependent variable, while the independent variables were liquid liability divided by GDP, bank total credit to the private sector divided by GDP for bank-based financial structure, value of shares traded divided by GDP and total market capitalization divided by GDP for market-based financial structure. The regression result shows that the component of bank structure size defined by liquid liability divided by GDP is not positive in predicting growth. However, bank structure activity defined by credit to the private sector divided by GDP exhibited positive relationship in explaining long-run economic growth. Also, the result shows that stock market structure size proxied by market capitalization divided by GDP does not promote growth, while market structure activity defined as value of shares traded divided by GDP was found to be positive in explaining economic growth. The empirical evidence suggests that both bank-based and market-based financial structure promote economic growth. However, bank-based financial structure exerts more positive influence on long-run economic growth than market based financial structure.