Finance and growth in oil‐dependent economies: does crude oil price matter? evidence from Nigeria

Abstract

AbstractThis study examines three possible causal relationships between financial sector development, economic growth and crude oil price in Nigeria using the Autoregressive Distributed Lag (ARDL) approach to cointegration analysis over the period 1981 to 2011. First, the causal effect of financial sector development on economic growth is found to be negatively insignificant in the long‐run and negatively significant in the short‐run suggesting the weakness of financial intermediary sector in resource mobilisation and allocation in Nigeria. Crude oil price is found to be the key driver of economic growth in Nigeria. Second, the causal effect of economic growth on financial sector development is as well found to be negatively insignificant in the long‐run and negatively significant in the short‐run. Third, the causal effect of crude oil price on financial sector development is found to be positive and significant in the long‐run, suggesting that crude oil price is the underlying factor that determines the amount of economic activities passing through the Nigerian financial sector. The results highlight the need for a well‐articulated policy framework that will lessen the high dependence of the Nigerian economy on crude oil.