The Nexus between Financial Development, Trade Performance and Growth in Nigeria

Abstract

The study investigates the nexus between financial development, trade performance and growth in Nigeria between the period 1985 to 2020. Financial development, government expenditure, inflation rate and trade openness were used as dimensions of independent variables while real gross domestic product was used as the dependent variable. Annual time series data on our targeted variables were obtained from secondary sources including the Central Bank of Nigeria annual statistical bulletin, World Bank development indicators. The Eview9 Statistical Software was employed to analyze the data empirically. The Unit root test shows that financial development, government expenditure, trade openness and real gross domestic product are all stationary after first difference I(1) while inflation rate was stationary at level I(0). The data were analyzed using the Autoregressive distributed lag (ARDL). The results of the ARDL estimates indicate that in the long run financial development and government expenditure coefficients have positive relationships with real gross domestic product and they are also statistically significant. The study recommends amongst others that Nigerian trade performance should be improved through economic diversification so as to reduce much emphasis on oil export and availability of funds from private sector at competitive interest rate in order to produce internationally competitive products should be encouraged. Also, there should be the implementation of monetary policies that would bring about stability in exchange rate, promote trade openness and ensure government purchases that enhances financial development.