Financial Deepening and Economic Growth in Nigeria (1986 – 2022)

Faith Okete and Okuma N. Camillus, PhD, Llb
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Faith Okete: Department of Banking and Finance, Madonna University Nigeria
Okuma N. Camillus, PhD, Llb: Department of Banking and Finance, Madonna University Nigeria

International Journal of Research and Innovation in Social Science, 2024, vol. 8, issue 11, 204-216

Abstract: This paper examined the financial deepening on economic growth in Nigeria. Adopting the supply-leading hypothesis using variables such as money supply, credit to private sector, inflation rate, market capitalization and prime lending rate as proxies for financial deepening and real gross domestic product growth rate for economic growth, we found that credit to private sector and market capitalization promote economic growth in Nigeria while money supply, inflation rate and prime lending rate did not within the period studied (1986-2022). Expanding the financial sector allows financial intermediaries to carry out functionalities of deploying, aggregating and directing a country’s savings into an investment which contributes to domestic progression. Data was obtained from CBN bulletin different issues and analyzed using Autoregressive Distributed Lag. From the result of analysis, we found out that long run relationship existed but no regressor was found to be significant. Credit to the private sector and market capitalization to RGDP had positive relations with economic growth, whereas money supply, inflation rate and prime lending rate to GDP had positive relations with economic growth rate. Government policy should therefore be geared towards strategically increasing money supply and promoting efficient capital market that will enhance overall economic efficiency, create and expand liquidity, mobilize savings, enhance capital accumulation, transfer resources from traditional sectors to growth inducing sectors (such as manufacturing and industry, agriculture and the services sectors) and also promote competent entrepreneurial response in various sectors of the economy. Policies favoring credit lending to the private sector should be encouraged by stakeholders in the economy, for instance, higher savings interest rates would encourage more savings. Raising the interest provided to depositors on their savings will serve as a perk to attract customers to save more money with commercial banks, savings and borrowing for investments will be encouraged as a result.

Date: 2024
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