Financial Liberalisation and Economic Growth In Nigeria: An Empirical Analysis

Abstract

The purpose of this study is to empirically examine the financial liberalization experience in Nigeria. In particular, the study analyses the motivation for implementing a financial liberalization policy; providing an explanation of the evolution and process of the financial liberalization. This study establishes the long-run and short-run relationship between financial liberalization and real output using the ARDL framework with annual observations over the period 1981-2012. The study uses three measures as proxies to indicate the degree of financial liberalization: KAOPEN-a financial openness index; money supply as a ratio of GDP, M2; and credit to the private sector as a ratio of GDP, CPS. The results obtained suggest that there is a positive long-run equilibrium relationship between financial liberalization and economic growth. This supports the view that financial liberalization plays a crucial role in the process of economic development; the financial liberalization process in Nigeria has stimulated financial development leading to significant contribution to economic growth. Therefore, since financial development seems important to economic growth, measures should be taken to reduce government inefficiencies in order to release resources for the development of financial institutions