Financial Institutions’ Inter Mediation and Economic Development in Nigeria

Abstract

This paper examines the effect of intermediation capacity of the financial institutions on the Nigerian economic development (Real Gross Domestic Product (RGDP). It is a causal-effect relationship study which made use of macro data obtained from Central Bank of Nigeria (CBN) Statistical Bulletin from the period 1981-2016. The result of the Johansen co-integration test and ARDL bound test evidenced that there exist a long-run relationship between financial institutions’ activities and real GDP. ARDL regression model showed financial institution activities, particularly the loans to the private sector significantly impacted on economic growth both in the short-run and long-run The study also found that bank loans and advances, bank reserves and interest rate had insignificant negative impact on real GDP while credit to private sector significantly affected economic development of Nigeria (RGDP) Thus, economic development of Nigeria is driven by the performance of deposit money banks and concludes that the performance of deposit money banks has effect on the economic development of Nigeria. The study recommended that the banking sector should increase lending to the private sector in order to engender economic growth through the enhancement of entrepreneurial development.