The Nexus between Financial Development and the Nigerian Economy: An Empirical Study
Abstract
The study looked at the relationship between financial development and economic growth in Nigeria. Because of the academic controversy surrounding the way many researchers have viewed the role of financial development and the economic growth as to which influences the other, it became imperative to put to test this theory using the e-views statistical package in carrying out series of regression tests (including diagnostics). This research adopts the ex- post facto research design. The result of our analysis indicates that Credit to the Private Sector (CPS) is positively related to GDP (GDP) which tends to show that as more foreign investment inflow is experienced in Nigeria, its GDP also rises. The significant relationship between these variables as indicated by the various test carried out implies that Nigeria has been a huge recipient of foreign investment and this has helped in no small measure to improve on the size of its GDP. The study further finds that Total National Savings (TNS) is positively related to GDP, that the more the inflow of foreign investment the higher the GDP. This conforms to expectation as studies have proved that foreign investment as source of capital helps to boost economic production and the GDP has significant impact on stock market capitalization in Nigeria. In conclusion therefore, financial growth proxied by TNS, CPS and MCAP are factors that has contributed to the growth of the Nigeria economy as indicated by its impact on selected macroeconomic variables studied. Policy recommendations include that monetary authorities must take a more cautious look at financial growth variables as a source of inflation since they relate with money supply in Nigeria. On the other hand, they can be encouraged in an attempt to increase money supply in the economy.
References
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