Output Volatility in Nigeria: Does Financial Development Absorb Trade-Led Shocks?

Chima Igwe-Kalu and Barnabas Olusegun Obasaju

International Journal of Finance, Insurance and Risk Management, 2020, vol. 10, issue 2, 66-78

Abstract: Purpose: The aim of this paper is to empirically determine the stance of the Nigerian financial sector in absorbing or intensifying trade shocks. Design/Methodology/Approach: Towards achieving this objective, the study uses Auto-Regressive Distributed Lag (ARDL) technique to analyse annual data from 1981 to 2017. Data used in this study were sourced from Central Bank of Nigeria Statistical Bulletin and Statista. Findings: Major finding from the long-run result shows that financial development intensifies trade-led shocks, there by yielding to output volatility. Practical implication: Based on findings, the study recommends the Nigerian government to focus on the achievement of greater and more inclusive financial development. This can be achieved through; increasing the availability and affordability of financial services, easing access to loans, improving soundness of banks and fostering legal traditions that protect creditors and investors. Originality/Value: In addition to the lack of available literature with focus on this subject in the Nigerian sphere, understanding the role of Nigerian financial sector in absorbing trade-led shocks is fundamental in optimizing Nigeria’s benefits from trade. This is of utmost importance, particularly in a time where the nation just signed the Africa Continental Free Trade Agreement.

Keywords: Financial development; trade shocks; output volatility; Nigeria; ARDL. (search for similar items in EconPapers)
JEL-codes: F40 G00 O1 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:ers:ijfirm:v:10:y:2020:i:2:p:66-78

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