Impact of financial development on economic growth in Nigeria

Abstract

The study investigated the impact of financial development on economic growth in Nigeria utilising annual data from 1985 to 2022 sourced from the Central Bank of Nigeria Statistical Bulletins and World Bank indicators. The variables used in this study were real gross domestic product (RGDP), a proxy for economic growth as the dependent variable while credit to the private sector, a proxy for financial deepening, all share index (ASI), nominal exchange rate (ER), gross savings (GS), remittances (REM) and financial technology (Fin-Tech_dum) were all used as financial development indicators which are the independent variables. The method of analysis employed was the Auto-regressive Distributed Lag (ARDL) and the pairwise granger casualty test. The ARDL long run results show that all share index, exchange rate and financial technology positively and significantly affects economic growth; credit to the private sector and gross savings positively but insignificantly impacts on economic growth. However, remittances reveal a negative and insignificant impact on economic growth in Nigeria. The Pairwise causality test shows that there are three unidirectional causality which runs from economic growth to credit to private sector, financial technology and gross savings in Nigeria. In conclusion, the findings of the study validate the demand-following theory in Nigeria. The policy recommendation suggests that the Central Bank of Nigeria should promote the adoption of advanced financial technologies and implement cautious expansionary monetary policies in specific sectors to encourage investment and economic growth. Overall, these measures would boost investment and economic growth in the country.