Financial Intermediation and Nigerian Economic Development
Abstract
The study investigated the impact of financial intermediation on economic development in Nigeria. The study represented financial intermediation into four variables which are financial depth, credit to the private sector, access to financial services and interest rate spread and regressed them on human development index as proxy for economic development in Nigeria. The data were obtained from CBN Statistical Bulletin and World Bank World Development Indicators for periods under the liberalized era in Nigeria economy spanning 1987 to 2024. The data were analyzed based on Johansen cointegration and Error Correction Mechanism. The unit root analysis was carried out using the Augmented Dicker Fuller Test. The unit root results show that money supply, credit to private sector, total savings, interest rate, and human development index are stationary at first difference. The result of Johansen cointegration test indicated presence of a long run relationship between independent variables (money supply, credit to private sector, total credit, and interest rate) and the dependent variable (human capital development index). The ECM revealed that (1) Financial depth represented with money supply had a positive and no significant effect on human development index; (2) credit of private sector had a positive but no significant effect on human development index; (3) access to financial services (total savings) had a positive and no significant effect on human development index; and interest rate had a negative and significant effect on human development index in Nigeria. The study concluded that, while financial intermediation plays a crucial role in economic development, its current impact on human capital development in Nigeria is limited. It was recommended that for financial intermediation to better contribute to economic development, particularly human capital improvement, there is a need for comprehensive reforms that address inefficiencies in financial depth, access to cred
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