Real Sector Output and Financial Liberalisation in Nigeria

Abstract

This study investigates the impact of financial liberalisation on real sector output in Nigeria by adopting the Ordinary Least Square (OLS) modeling technique for the econometric analysis. Pre-estimation tests such as the Stationarity and Cointegration tests were also done. The results show that the variables of interest in the model are cointegrated and that financial liberalisation (proxied by private sector credit) has a negative impact on manufacturing sector, while it has a positive impact on agricultural sector. This implies that credit to private sector was diverted to some unproductive ventures, rather than productive activities. Furthermore, poor infrastructure, high level of corruption, political and economic instability and high cost fund were found to have constrained the contribution of private sector credit to economic development. On the other hand, its positive impact on agriculture shows that there is an improvement in the agricultural sector since the commencement of financial liberalisation. The study concludes that efforts should be geared towards militating against the socioeconomic cum institutional factors that constrained the contribution of private sector credit to manufacturing output growth in Nigeria within the period under review.