Financial Development and Economic Performance in Nigeria: Evidence from Sectoral Analysis

Abstract

This paper examined the effect of financial development variables on sectoral output performance in Nigeria. The study adopted time series data that were obtained from the Statistical Bulletin of the Central Bank of Nigeria (CBN, 2020) and World Development Indicators (WDIs, 2020) for a period of 1981 – 2020. Autoregressive distributed lag (ARDL) and Fully Modified Ordinary Least Squares (FMOLS) techniques were adopted for short run and long run analyses. The results show that domestic credit to the private sector as a ratio of GDP has positive effect on Agricultural sector, but records negative effects on manufacturing sector, whereas, money supply as a ratio of GDP exerts negative effects on all the sectors in the short run. In the long run, money supply as a ratio of GDP also exerts negative effects on all the sectors save for services sector on which it has positive effects, while domestic credit as a ratio of GDP has positive long effects on all the sectors. The study identifies agricultural and services sectors as growth catalyzing sectors in relation to the influence of financial development. It is therefore recommended that policy makers take serious interest in the sectors, while further examining the challenges of failing financial development strategies on the manufacturing sector