Economic Growth and Financial Deepening – A Case Study of Nigeria

Dr Ogbonna Udochukwu Godfrey

doi:10.47191/jefms/v5-i2-03

Abstract

The study examined Economic Growth and Financial Deepening – A Case Study of Nigeria. The study employed the Variance Inflation Factor (VIF) to test the presence of multicollinearity in the model, Augmented Dicky Fuller (ADF) unit root test to check the stationarity of the variables, the Error Correction Mechanism (ECM) was used to estimate the model established, and the Pairwise Granger Causality test to check the existence of causality among the dependent and independent variables. The result of the study of cointegration and equilibrium test of Economic Growth and Financial Deepening shows generally, a long run cointegration between economic growth and financial deepening. However, further study of the relationship shows that money supply shows a significant relationship with economic growth, while credit to private sector shows insignificant relationship with economic growth. Furthermore, there is no significant causal relationship between credit to private sector and gross domestic product, while there is an existence of bi-directional causality between money supply and gross domestic product. The implication of this is that money supply as it can cause economic growth and vice versa, while credit to private sector does not have any impact on economic growth.

Highlights

Financial deepening can be seen as the extension of financial services to all the corners of a country
The findings revealed a significant and positive relationship between the variables which implies that financial deepening plays an important role in the security of investment for economic development
4.9 Discussion of Findings To come up with inferences, this study employed the Variance Inflation Factor (VIF) to test the presence of multicollinearity in the model, Augmented Dicky Fuller (ADF) unit root test to check the stationarity of the variables, the Error Correction Mechanism (ECM) was used to estimate the model established, and the Pairwise Granger Causality test to check the existence of causality among the dependent and independent variables

Summary

Introduction

Financial deepening can be seen as the extension of financial services to all the corners of a country. Onwumere et al (2013) is of the view that a country’s financial system encompasses intermediation that involves savings allocation to investments It includes the optimal use of available resources for economic growth and development. The extension of financial intermediation deepens the participation of the financial system in the allocation of financial resources for economic growth and development It involves taking funds from the surplus unit and allocating same to the deficit unit. It was Onwumere et al (2013) that said that the efficiency of a financial system whose role includes but not limited to intermediation can only be realized only when there is a promotion of the best resources allocation formula for development. This research is set out to determine whether there exists long run relationships between financial deepening indices such as money supply, and credit to the private sector when compared to economic growth

Results

Discussion

Conclusion