Financial Openness and Financial System Stability: Evidence from Nigeria

Abstract

The overall economic outlook for both the global and domestic economies in the short to medium- term remains uncertain as the effects of supply chain disruptions occasioned by the Russian- Ukraine crisis, elevated global instability. The lingering impact of the Covid-19 pandemic, as well as the broad shocks to foreign capital flows following rate hikes by most advanced economies continue to dampen growth expectations both in Nigeria and worldwide. Hence, this study examined the nexus between financial openness and financial system stability in Nigeria. Annual time series data were sourced from the Central Bank of Nigeria and World Development Indicators. Financial system stability index was calibrated using the Principal Component Analysis (PCA), while financial openness was captured by de’ factor and de’ jure approaches. The study applied the bound testing and granger causality estimation techniques for data analysis. A long run relationship was found among the variables in the estimated model. From the study, it

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