Financial Development In Nigeria Research Articles

Asymmetric Response of Fiscal Sustainability to the Financial Development in Nigeria

This study examines the asymmetric response of fiscal sustainability to financial development in Nigeria while augmenting the model with exchange rate volatility within the non-linear autoregressive distributed lag framework. The empirical evidence reveals that positive and negative shocks in domestic credit to the private sector result in significant unsustainable fiscal balance and fiscal sustainability both in the short run and long run respectively. Increase and decrease in annual market capitalization have a positive and negative significant impact on the fiscal sustainability in the long run respectively. Exchange rate devaluation or depreciation has a devastating effect on fiscal sustainability both in the short run and long run. Wald test revealed that credit to the private sector and annual market capitalization have an asymmetric effect on fiscal sustainability both in the short run and long run, while the exchange rate has no asymmetric effect on fiscal sustainability. For a sustainable fiscal stance, we recommend a financial model that channels credits towards productive activities to boost GDP as this will go a long way in reducing the debt-to-GDP ratio and enhancing solvency.

Unraveling the relationship between trade openness, economic growth, and financial development in Nigeria

Purpose — This study examines the impact of trade liberalization and economic growth on financial development and suggests policies to enhance financial stability.Method — The study utilizes an Autoregressive Distributed Lag Model to analyze the presence of co-movement within the context of trade openness and economic growth on financial development in Nigeria. Additionally, the technique allows for a dynamic assessment of the short and long term.Result — Our findings for Nigeria spanning from 1990 to 2021 demonstrate a positive long-term relationship between trade openness and financial expansion, while economic growth has a negative short-term impact on financial expansion.Contribution — This study contributes to the frontier of knowledge by uncovering the interplay among Nigeria's trade openness, economic prosperity, and financial development, which has been overlooked. Additionally, it offers insights into the specific dynamics and mechanisms operating within the Nigerian context by scrutinizing relevant economic indicators.

Carbon Dioxide Emissions and Economic Growth Nexus in Nigeria: The Role of Financial Development

This study examines the effect of carbon dioxide emissions on economic growth, including investigating whether the CO2-economic growth relationship is dependent on financial development in Nigeria between 1980 and 2020. Due to dwindling economic growth, Nigeria experienced two recessions in one decade. Besides poor growth rates, Nigeria remains a leading emitter of CO2 in the Sub-Saharan region. The motivation for this study derived from the rising level of carbon dioxide emissions in Nigeria which might affect economic growth by dwindling agricultural activities (low output) in some regions, pose health challenges and create a shortage of inputs to agro-allied industries. Hence, this paper attempted to see if there was a causal relationship between carbon dioxide emissions, financial development, and economic growth in Nigeria. The relationship between the variables was examined using the Autoregressive Distributed Lag estimation technique (ARDL) estimation method. The framework for this study has its basis in the endogenous growth theory and utilizes the growth and pollution stock model which showed that sustainable economic growth is influenced by a large stock of pollution (CO2 emission). The results of the boundaries test for cointegration showed a long-term relationship between CO2 emissions, economic expansion, financial development, and energy use. According to empirical data, CO2 emissions have little long-term impact on economic growth. However, there is evidence that the interaction of CO2 emissions and financial development promotes economic growth over the long term, suggesting that CO2 emissions only have an economic influence when there is financial development.

Empirical Analysis of Financial Development and Financial Inclusion Nexus in Nigeria

Abstract Subject and purpose of work: The literature on financial development and economic growth is expansive. The proportion of individuals and firms that use or have access to financial services can be referred to as the financially included. Considerable evidence shows that the poor benefit more from access to basic financial services such as payments, savings accounts and insurance. Thus, this study analysed the impact of financial inclusion on financial development in Nigeria between 1982 and 2019. Materials and methods: M ultiple r egression a nalysis w as e mployed i n t he s tudy i n o rder t o properly estimate the models and get robust results. Results: The findings reveal that financial inclusion has a minor impact on financial development. Investment was also shown to improve financial development. Conclusions: The study recommended that policies should be directed towards creating a more inclusive financial system in order to improve the current level of financial inclusion, so as to achieve better financial development in Nigeria.

Impact of Globalization on Financial Development in Nigeria

This study examines the impact of globalization on Nigerian financial development with particular reference to foreign direct investment, trade openness, exchange rate, government expenditure, interest rate and inflation. The statistical data used for the study were obtained from Central Bank of Nigeria publications and [Statistical Bulletin 2020] and [World Development Indicators 2020]. The study employed the autoregressive distributed lag (ARDL) model. Major findings from the study show that foreign direct investment, trade openness and government expenditure have a positive and significant impact on financial development in Nigeria while exchange rate, interest rate and inflation rate have a negative significant impact on Nigerian financial development. It is recommended that Nigeria must face the challenges of globalization. For a country to belong to the race, major changes and restructuring are imperative, hence, Nigeria must develop the internal structure and the will to adopt those policies that brought about the benefits from globalization.

Impact of financial development on bank profitability

PurposeThis paper investigates the effect of financial development on bank profitability. The authors examine whether financial development is an important determinant of bank profitability.Design/methodology/approachThe ordinary least square and the generalized method of moments regression methods were used to analyze the impact of financial development on the profitability of the Nigerian banking sector.FindingsThe authors find a significant negative relationship between the financial system deposits to GDP ratio and the non-interest income of Nigerian banks. This indicates that higher financial system deposits to GDP depresses the non-interest income of Nigerian banks. The result implies that the larger the size of the Nigerian financial system, the lower the profitability of banks in Nigeria. Also, the authors observe that bank concentration, nonperforming loans, cost efficiency and the level of inflation are significant determinants of the profitability of Nigerian banks.Practical implicationsIt is recommended that regulators should establish market-enabling policies that encourage new banks to emerge in the banking industry. The entry of new banks can lead to increase in financial system deposits and credit supply for economic growth. Regulators also need to understand the role of Nigerian banks in promoting financial development and find ways to collaborate with banks towards financial sector development. Another implication of the findings for asset managers is that asset managers will need to take into account the prevailing level of financial development, particularly the size of the financial system, in their asset pricing and investment decisions. This will ensure that investors get value for their investments in Nigeria. The financial implication of the study is that the level of financial development in Nigeria can improve the finance-growth linkages in Nigeria through the efficient allocation of credit and capital to crucial sectors of the Nigerian economy to spur growth in those sectors.Originality/valueEvidence dealing with how financial development affects the profitability of the banking sector in African countries is scarce in the literature, and is completely absent for Nigeria. This paper addresses this research gap.

Responsiveness of Service Sector Growth to Financial Development in Nigeria: Evidence from 1981-2019

Purpose: This paper explores the relationship between financial development and output of the service sector in Nigeria over the period 1981-2019. It presents an analysis of the long-run and short-run impacts of financial development on the performance growth of the service sector, as well as the cointegration between the variables. Approach/Methodology/Design: We test the time series for stationarity using Phillips-Perron and Augmented Dickey-Fuller unit root tests. We adopt the Auto-Regressive Distributed Lag (ARDL) approach to analyze the relationship between financial development and service sector performance in Nigeria. Market capitalization, monetization ratio, and the ratio of credit to the private sector to GDP represent the indicators of financial development. Findings: The results of the study show that market capitalization and monetization ratio have significant positive impacts on service sector output, respectively. However, the effect of credit to the private sector on service sector performance is insignificant and negative. We find no cointegration among the investigated variables; while, the result of the error correction estimation indicates that it takes about two years to restore the long-run equilibrium after a deviation. In light of the findings made, this paper concludes that financial development exerts a significant positive effect on service sector performance in Nigeria. Practical Implications: This study is valuable at this period of economic uncertainties in Nigeria. With input from this paper, policymakers in the public sector via the formulation and implementation of effective policy measures such as fiscal measures can channel the benefits of financial sector development to the service sector to create an enabling business environment for the sector, especially as it concerns the provision of private credit to the sector. Originality/value: Based on literature review, this paper for the first time investigated the link between financial development and the performance of the service sector in Nigeria as defined by the CBN Statistical Bulletin 2019 edition.

Political risk and financial development in Nigeria: Can credit buy social peace?: Evidence from NARDL approach

This study provides a first attempt to analyze the role of credit in the political stability of developing countries. By examining the case of Nigeria using annual data over the period 1984–2017 and the non-linear ARDL (NARDL) approach, we find that credit supply shocks have a significant and non-linear impact on short- and long-term political risk. In terms of asymmetry, we show that positive shocks have a positive and more pronounced impact than negative shocks in the short run, proving that credit expansion can be effective in terms of short-term political stability. In the long run, positive credit shocks increase political risk while negative shocks decrease it. These results suggest that an improvement in Nigeria’s prudential requirements for credit supply could be more effective for political stability than an easing of credit in the long run. In addition, better management of oil revenues, particularly through effective sterilization policies, is essential to prevent oil price fluctuations from leading to a highly pro-cyclical supply of credit, which threatens long-term political stability.

Real Exchange Rate and Economic Growth: The Interacting Role of Financial Development in Nigeria

This article gives empirical evidence that the real exchange rate can significantly affect sustainable productivity growth, which confirms the hypothesis that the effect critically depends on the degree of the economy’s financial development. Following the relatively underdeveloped financial system in Nigeria, its exchange rate reduces the productivity growth of the economy. In this article, we consider the interacting effect of exchange rate fluctuation and the level of financial development instead of analyzing the exchange rate fluctuation in isolation. The empirical estimation is based on the Nigerian data set covering the years 1980-2019; through the application of threshold autoregressive non-linear co-integration and the non-linear ARDL estimation. We further deploy a test of causality using the frequency domain that enables us to differentiate a temporal as well as a permanent causality. The findings appear that financial development amplifies the positive effects of the real exchange rate on Nigeria’s economic growth. It also records that the uncertainty in foreign capital flows adversely affects Nigeria’s output growth. The paper recommends that the Nigerian policymakers should in their attempt to diversify and improve the future growth of the economy, promote adequate financial sector development since financial shocks are amplified with poorly implemented credit markets.

The Asymmetric Influence of Exchange Rate and Inflation on Financial Development in Nigeria: Evidence from NARDL

This paper examined the asymmetric effects of exchange rate, and inflation on financial development growth using a model enhanced with oil prices asymmetry to apprise model specification. The research question that has been used implies, do the changes in their asymmetry significantly influence financial development? We employed nonlinear auto-regressive distributive lag (NARDL). In addition, we used the monthly data from 1980M01 to 2018M12. We found a long-term negative shock in exchange rate, both short run positive shock and negative shocks, respectively, declining the financial development. Additionally, the long run negative oil price shock and its long-term positive shocks stimulate and decline financial development, respectively. Regarding inflation, its positive and negative shocks in long run, respectively, reduce financial development. While in the short run the negative and positive shock in inflation increase and decline the financial development respectively. Accordingly, the results demonstrate a stable and sustainable inflation and exchange rate environment that would negatively cause financial development to stabilize the oil price and enhance the robust financial system. Therefore, successful policies that promote low inflation and exchange rates, overhaul of reliably improved financial institutions, capital accumulation, and efficient resources mobilization should be put in place for positive financial development to occur.

The Effects of Foreign Direct Investment Uncertainty on Financial Development in Nigeria: An Asymmetric Approach

This article investigates the dynamic effects of foreign direct investment uncertainty on financial development in Nigeria and the interacting role of financial inclusion and economic growth. We used the annual time series data of Nigeria covering the period 1970-2018. Through advanced econometric techniques, we first substantiated stationarity level and co-integration among the scrutinized variables, which is genuinely done for reliable findings. Following that, we applied Gregory and Hansen (1996) co-integration test, Non-linear ARDL as the elasticity estimator, and Diks and Panchenko (2006) causality test for the analysis. The Empirical evidence postulates the asymmetric nature of foreign direct investment uncertainty to financial development. We also found a non-linear uni-directional causality running from economic growth to financial development, foreign direct investment uncertainty to financial development, and financial inclusion to financial development. In the end, the authors proposed the needed policy recommendations to strengthen the Nigerian financial sector.

Financial Development, Remittances Inflows and Economic Growth in Nigeria: A Time Series Analysis

This study examines whether financial development promotes remittances inflows and Nigerian economic growth. Using a time-series data for a period of 1985-2017, the Autoregressive Distributed Lag (ARDL) technique was employed. The results suggest that financial development in Nigeria exerted no significant impact on economic growth. It is an indication that financial development is not a significant variable for promoting remittances inflows into Nigeria. However, the study concludes that remittances inflows are a substitute for promoting individual’s financial business opportunities and economic growth. The study therefore recommends that the government should strengthen the Nigeria financial institution, and also institute a financial reform initiative that can enhance financial security as well as ease of accessing remittances inflows.

Financial Development and the Quality of the Environment in Nigeria: An Application of Non-Linear ARLD Approach

The present study examines the asymmetric effect of financial development on the quality of environment in Nigeria from 1970 to 2018. The study employed the techniques of non-linear ARDL approach as well as Diks and Panchenko (2006) non-linear test of causality. A comprehensive index of financial development is constructed using PCA. The empirical outcomes of the study reveal that financial development in Nigeria impedes the quality of the environment. The government should encourage lenders to ease the funding for the energy sector and allocate financial resources for environment-friendly businesses rather than wasting them in consumer financing. Moreover, economic growth and FDI are positively and significantly related to carbon emissions. On this basis, the government should introduce environmentally friendly technologies that will help improve the quality of the environment, increase long-term sustainability, and save resources for generations to come. A key policy consequence of this study is also that the FDI inflow to pollution-intensive industries should be closely monitored.

The Environmental Aspect Examination of Maritime Transport, Environmental Pollution and Economic Growth in Nigeria

The impact of maritime transport in the financial improvement of any nation cannot be over-accentuated. In the meantime, the result of the maritime exercises on the earth has been a worry and the subsequent impact on the economy. Nigeria is a developing country and could too have a portrayal as an import-oriented country; hence, it depends vigorously on sea transport for the importation of products. This study targets analyzing the connection between marine pollution, maritime transport, and financial development in Nigeria. Time arrangement information that spread over from the year 2000 to 2018 was used, and Autoregressive Distributive Lag (ARDL) model was utilized for the investigation. The discoveries from this examination uncover a long-run relationship running from marine pollution to economic growth. It was additionally found from this examination that a critical short-run relationship exists between maritime transportation and environmental pollution. Additionally, huge long-run causal effect of sea transport was found in the financial development of Nigeria. Further investigation from the examination demonstrates a long-run unidirectional connection between environmental pollution and financial development; and exchange and economic growth, while the bi-directional causal relationship won between maritime transport and economic growth. The investigation, in this manner, proposes that Nigeria ought to improve both environmentally and economically as a result of its negative job in ecological quality is more overwhelming than its advantages in monetary development.

Financial Sector Development in Nigeria: Do Financial Reform, Output Size and Resource Dependence Matter?

The study examined the determinants of financial sector development in Nigeria in an error correction modelling framework, and with OLS for robustness checks, using data from 1980 to 2017. The results show that, banking sector reform, gross capital formation, government expenditure, interest rate spread, output size and trade openness were significant determinants of financial sector development in both the short- and long run. Proxy for economic misery was only significant in the ECM equation, while literacy and human development metric was significant in the long-run equation. Natural resource dependence, proxy by ratio of natural resource rent to GDP, was negatively related to financial sector development in Nigeria, though the coefficient was not significant at conventional levels. Economic misery, interest rate spread and inflation were observed to undermine financial development in Nigeria. The study recommends the continuation of the process of financial liberalization because of its immerse benefits of promoting competition amongst financial institutions with attendant positive effects of reducing interest rate gap. Domestic output, measured by the real GDP, should be enhanced with appropriate stabilising policy, whether fiscal or monetary policy. Additionally, efforts should be enhanced to limit the effects of macroeconomic instability on financial sector development. Lastly, the study recommends efficient management of natural resources to enjoy a non-declining contribution to the development of an inclusive financial system in Nigeria.

Institutional Quality and Financial Sector Development: Empirical Evidence from Nigeria

In view of the indispensable role of financial sector in both emerging and developing economies, there has been a notable spotlight on the financial sector development over the years in most African countries. Nonetheless, there are only a few studies on this topical issue, particularly for Nigeria. Hence, this study examines the long – run and short – run dynamic relationship between institutional quality and financial development in Nigeria over the period of 1984 – 2015 using Auto-Regressive Distributed Lag (ARDL) bounds test approach to cointegration. Using two different indicators (Private credit and M2) of financial development, the results consistently show that institutional factors do not have significant effect on financial development in the long – run as well as in the short – run. Furthermore, the empirical evidence indicates that regulatory quality and governance system (institutions) do not necessarily contribute to financial development in a feeble institutional environment, specifically in Nigeria. Thus, our findings suggest that whilst weak institutions could increase the risk of limiting the functioning of financial system, good governance and strong institutions are the essential ingredient of financial development in Nigeria. As a consequence, policies aimed at strengthening the quality of institutions and governance should form the major policy thrust of government (policy makers). These could help improving financial sector development in Nigeria.

Relationship Between Electricity Consumption, Manufacturing Output and Financial Development: A New Evidence from Nigeria

Electricity is regarded as sine quo non for any meaningful social, economic and modern scientific advancement of any country in the world. It is regarded as a force and engine room of the industrial sector. However, in Nigeria, instability in power supply is negatively affecting manufacturing efficiency. Time series data for 1981 until 2015 was used to examine the symmetric relationship between the electric consumption, manufacturing output and financial development in Nigeria.? The result indicates the co-movement in the variable over long time horizon, meaning that any inefficiency in electricity supply would impedes industrial output. Moreover, the Granger causality test based on vector error correction framework shows the presence of causality between power utilization of manufacturing firms and economic growth without feedback. In this sense it can be stress that stable electricity consumption is important factor for Nigeria?s manufacturing sector. The result of variance decomposition further indicates that the variation in the industrial output responds more to shocks in the electricity supply than its own shock. This finding suggests that energy is the engine of manufacturing sector in Nigeria.

Do Financial and Trade Openness Lead to Financial Sector Development in Nigeria?

Abstract With so many countries of the world now open to global capital and trade, this study identifies whether financial and trade openness contribute to the development of Nigeria’s financial system by considering both financial depth and access to finance indicators. To achieve this objective, we applied the Simultaneous Openness Hypothesis as our theoretical framework and the Generalized Method of Moments (GMM) as our estimation method. Our findings reveal that opening trade while neglecting capital (vice versa) may be detrimental to the development of Nigeria financial system. In view of this evidence, we recommend that the simultaneous opening of trade and finance is a more guaranteed way of ensuring improved financial development in Nigeria.

Do the dynamics of financial development spur economic growth in Nigeria’s contemporal growth struggle? A fact beyond the figures

This paper investigates whether long-run economic growth can be fostered by the impact of financial development in Nigeria, and what could be the empirical explanations for the factors attributable to the continued backwardness of the Nigerian economy in the current millennium? Is the relationship between financial development and economic growth monotonic? To ensure this, we measure the short run and long run Impact of Financial Development on Economic Growth from 1980 to 2011. The “U” and the ARDL bounds testing approach to cointegration were applied. The findings of the study established that financial development and population are the only variables that have contributory impacts in fostering economic growth in both the long-run and short-run in Nigeria. While, M3, bank asset, fixed capital formation, trade and private sectors have insignificant contribution to GDP and are the impediments to Nigeria’s growth dilemma. In another dimension the research established that, the relationship between FD–GDP is monotonic suggesting that too much finance does not prevail in the Nigerian economy. By policy implication the country will be facing prolonged macroeconomic volatility due to the absence of strong exogenous risk cushioning effects, chaotic and unfavourable investment climate, unemployment and persistent exchange rate instability. Eventually these factors could lead to output failure, deterioration in reserve holding that could translate in to currency crisis and an eventual financial crisis. We recommend the pursuance of synergistic monetary policy model that will not only ensure a sustainable and improved value of the local currency but should also create its foreign demand among others.

Impact of Workers’ Remittances on Financial Development in Nigeria

In this study we examine the nexus between remittances and financial development (FINDEV) in Nigeria from 1977 to 2009. Towards achieving the objective of this study, we employ both the ordinary least square estimation (OLSE) technique and the Generalized Method of Moments (GMM) estimator. Moreover, key diagnostic tests are carried out in order to ascertain model adequacy. We also use two indicators of FINDEV, namely: the ratio of money supply to GDP (m2/gdp) and the ratio of private credit to GDP (cps/gdp). The results generally indicate that remittances positively and significantly influence financial development in Nigeria, with the exception of the cps/gdp measure of FINDEV in the GMM estimation where the coefficient is insignificant. This implies that remittances augment liquid liabilities more than loanable funds in Nigeria, as remittances are likely used more for consumption purposes than for productive ventures in the country. Since remittances provide foreign exchange that is vital to both the internal and the external sectors of the economy, they should be encouraged via appropriate policy formulation and implementation. Financial intermediaries and institutions operating in Nigerian should also intensify the mobilization of remittances with the aim of making them important sources of loanable funds in the country.