Submit your papersSubmit Now
For Enquiries: [email protected]
IIARD LogoIIARD
📄 Download Paper

Financial Sector Dynamics and Economic Development of Nigeria

U. D Ginika, S. M. Nzotta, U. G. Chris-Ejiogu

Abstract

This study examined the impact of financial sector development on economic development in Nigeria from 1990 to 2024, employing the Autoregressive Distributed Lag bounds testing approach to analyze both short-run and long-run relationships. Four comprehensive models were developed to assess the effects of market capitalization, total value of equity traded, bank deposit liabilities, and money supply on poverty index, human development index, Gini coefficient, and GDP per capita. The bounds test results confirmed significant long-run cointegrating relationships in all models, with F-statistics exceeding critical values. However, the empirical findings revealed troubling patterns: market capitalization significantly reduced human development (-0.057, p=0.0318) and increased inequality (+0.334, p=0.0000); bank deposit liabilities paradoxically reduced GDP per capita (-0.083, p=0.0000) and increased inequality (+0.015, p=0.0019); while most variables showed statistically insignificant effects on poverty reduction. Only money supply demonstrated consistently beneficial effects, significantly reducing inequality (-0.345, p=0.0000). The error correction mechanisms revealed differential adjustment speeds: poverty (46%), GDP per capita (70%), human development (104%), and inequality (328% with massive overshooting). The study concludes that Nigeria's financial sector expansion has been fundamentally disconnected from inclusive development objectives, primarily benefiting elites while failing to reduce poverty, improve human development, or promote equitable growth. The research recommends comprehensive reforms including: redirecting bank credit toward productive sectors; enhancing financial inclusion for marginalized populations; incentivizing capital market investment in real economy sectors; and strengthening regulatory frameworks to ensure financial sector growth translates into broad- based development outcomes.

Keywords

Financial sector developmentEconomic developmentMarket capitalizationPoverty indexHuman development indexFinancial inclusionNigeria.

References

Adegbite, E. O., & Azeez, B. A. (2023). Financial market development and economic growth in Nigeria. Journal of Economics and Finance, 47(2), 234-251. Asteriou, D., Pilbeam, K., & Tomuleasa, I. (2024). Finance-growth nexus in the European Union: The role of fiscal policy during normal and stress times. Journal of International Money and Finance, 140, 102-121. Atta, J. K., Mensah, L., & Abor, J. Y. (2024). Financial inclusion and economic development in Nigeria. Journal of African Business, 25(1), 78-95. Ayeni, R. K., Olaniyan, N. O., & Aderemi, T. A. (2024). Impact of financial sector development and trade sector development on economic growth in Nigeria. Journal of Economics and Sustainable Development, 15(2), 34-52. Beck, T., & Levine, R. (2023). Finance and growth: Theory and evidence. In P. Aghion & S. Durlauf (Eds.), Handbook of economic growth (Vol. 1A, pp. 865-934). Amsterdam: Elsevier. Biswas, R. K. (2023). Financial inclusion and economic growth in South Asian countries: Evidence from panel data. South Asian Journal of Economics, 18(3), 234-251. Demirgüç-Kunt, A., & Levine, R. (2023). Finance and economic development: Policy choices for developing countries. World Bank Policy Research Working Paper No. 3955. Demirgüç-Kunt, A., & Levine, R. (2024). Financial structure and economic growth: A cross- country comparison of banks, markets, and development. Cambridge, MA: MIT Press. Hussain, M. N., Bashir, U., & Hashmi, M. S. (2024). Financial inclusion and economic growth nexus in Asia: A dynamic panel approach. Journal of Asian Finance, Economics and Business, 11(1), 67-84. King, R. G., & Levine, R. (2022). Finance and growth: Schumpeter might be right. Quarterly Journal of Economics, 108(3), 717-737. Levine, R. (2021). Finance and growth: Theory and evidence. In P. Aghion & S. N. Durlauf (Eds.), Handbook of economic growth (Vol. 1, pp. 865-934). Amsterdam: Elsevier. Levine, R., & Zervos, S. (2022). Stock markets, banks, and economic growth. American Economic Review, 88(3), 537-558. Nwosa, P. I., & Oseni, I. O. (2022). Financial sector development and economic growth in Nigeria. Journal of Economics and International Finance, 3(11), 604-610. Nzotta, S. M., & Okereke, E. J. (2022). Financial deepening and economic development in Nigeria. African Review of Economics and Finance, 1(1), 12-42. Odhiambo, N. M. (2010). Stock market development and economic growth in South Africa: An ARDL-bounds testing approach. In Proceedings of the African Economic Conference, Tunis, Tunisia. Ogunmuyiwa, M. S., & Ekone, A. F. (2024). Money supply and economic growth in Nigeria. International Journal of Economics, Commerce and Management, 2(10), 1-14. Oluwantunsi, O. R., Omoyele, O. S., & Alabi, O. M. (2013). Impact of capital market on economic growth in Nigeria. Developing Country Studies, 3(11), 88-94. Osakwe, A., Ogbonna, B. M., & Obi-Nwosu, V. O. (2020). Stock market capitalization and economic growth: A comparative study of Nigeria and South Africa. International Journal of Economics and Financial Management, 5(1), 34-49. Owolabi, A., & Ogunlalu, A. E. (2023). Stock market liquidity and economic growth in Nigeria. African Journal of Economic Review, 11(1), 45-62. Sanusi, L. S. (2020). Banking reform and its impact on the Nigerian economy. Journal of Economics and International Finance, 2(2), 30-40. Umozurike, U. J., Adeyeye, P. O., & Aronu, C. O. (2023). Financial inclusion and GDP growth in Nigeria: An ARDL approach. International Journal of Banking and Finance Research, 9(1), 34-51. Verma, S., & Chakrawarty, S. (2024). FinTech adoption and bank performance in developing Asian countries: The moderating role of economic governance. Journal of Asian Economics, 90, 101-123. Wang, Y., Chen, X., & Liu, H. (2024). Financial sector development and economic growth in emerging African and Asian countries. Emerging Markets Finance and Trade, 60(2), 234- 256. World Bank. (2024). World development indicators. Washington, DC: World Bank.

More Articles from WORLD JOURNAL OF FINANCE AND INVESTMENT RESEARCH

Advances in Quantitative Evaluation Models for Measuring Corporate Diversity and Inclusion Investments

Author: Ngonadi Uchechi, Michael Ominyi, Cyril Chimelie Anichukwueze, Ngozi Samuel, Uzougbo.

Effect of Naira Re-Design Policy on the Performance of Small and Medium Scale Enterprises in Sokoto State, Nigeria

Author: Sadat Ibn Adam and Adamu Idris

Entrepreneurship Development Access to Credit and Business Performance Among Youth-Owned Enterprises (A Study of Phone Accessories Business in Umuahia Metropolis, Abia State Nigeria)

Author: Aliba Ijeoma Vivian, Ikwuagwu Henry Chinedu, PhD, Maduagwuna Veronica Ifeyinwa, PhD

Stock Market Performance of Firms in the Nigerian Petroleum Sector Using the ARIMA Model Approach

Author: Dr. John Okey Onoh AND Gbalam Peter Eze (Ph.D)

Financialization and Swapization: A Chinese Lifeboat for Economic Development of Nigeria

Author: Department of Accountancy Imo State Polytechnic, Umuagwo Nigeria