Effect of financial development on economic performance in Nigeria

Abstract

This study empirically investigated and examined the effect of financial development on economic performance in Nigeria covering the period of 32 years spanning from 1990 to 2022. The study utilized of five (5) financial development proxies namely ratio of broad money to gross domestic product (M2GDP), ratio of credit to private sector to GDP (CPSGDP), ratio of domestic credit to GDP (DCGDP), foreign direct investment, (FDI), Government expenditure to GDP (GEGDP), and three (3) control variables; interest rate (INTR), served as the independent variables while one (1) economic performance variables namely ; Inflation rate (INFR) and Corruption (COR) GDP Growth Rate which served as the dependent variables in the study. Data were sourced from World Bank and Macro Trends and Transparency International Corruption from 1990 to 2023. Multiple regression model technique via E- view software 9.0 was adopted to test the hypotheses in the study. The result revealed that only ratio of domestic credit to GDP (DCGDP), foreign direct investment, (FDI), and interest rate (INTR), was found to have an insignificant positive effect on GDP growth rate while ratio of broad money to gross domestic product (M2GDP), ratio of credit to private sector to GDP (CPSGDP), Government expenditure to GDP (GEGDP), Inflation rate (INFR) and Corruption (COR) was found to have an significant negative effect on GDP growth rate. Thus, we concluded that there are both positive and negative significant impacts of financial development on the economic performance in Nigeria for years under review using the model of specifications i.e. GDP growth rate. To this end, we recommend that CBN should stimulate GDP growth rate by increasing proportionately to GDP, the volumes of money supply and private sector credits. This can be achieved through open market operation and reducing the cost of borrowing.