Impact of Financial Sector Development, Trade and Economic Growth in Nigeria

Michael S. Akpan, Marvelous Aigbedion, Joshua Jeremiah Dandaura and Irimiya Christabel Musa
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Michael S. Akpan: Department of Economics, Bingham University, Karu, Nigeria
Marvelous Aigbedion: Department of Economics, Bingham University, Karu, Nigeria
Joshua Jeremiah Dandaura: Department of Economics, Bingham University, Karu, Nigeria
Irimiya Christabel Musa: Department of Economics, Bingham University, Karu, Nigeria

International Journal of Research and Innovation in Social Science, 2024, vol. 8, issue 8, 1880-1894

Abstract: This paper investigated the impact of financial sector development and trade sector development on economic growth in Nigeria using quarterly data between 2010Q1 and 2023Q4. The paper adopted the Fully Modified Least Squares (FMOLS) technique, to regress real gross domestic product on the independent variables which included credit to private sector (measured as financial development), foreign trade balance (measured as value of exports minus value of imports), exchange rate spread and inflation rate which were used as proxied for trade sector development. The coefficient of credit to private sector (CPS) and exchange rate spread (EXR) had positive influences on real GPD and were statistically significant while trade balance (TB), had positive influence on real GPD and was statistically insignificant. However, the result of inflation rate revealed a negative and significant relationship with real GDP. Therefore, the paper concluded that financial sector development, exchange rate spread, trade balance are positive and statistically significant variables that influence real GPD growth while inflation rate negatively influences real output growth in Nigeria. The paper recommended that the exchange rate liberalization and increase in credit to the private sector should be sustained by the monetary policy authorities to sustain growth. At the same time the Nigerian Export Promotion Council should create incentives to promote exports to improve the country’s trade balance to correct its insignificant influence on growth. It is also recommended that inflation targeting should be adopted to anchor inflation.

Date: 2024
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