Testing the Validity of the Simultaneous Openness Hypothesis in Nigeria (1990–2015)

Michael Adebayo Ajayi and Olufemi Adewale Aluko

African Development Review, 2019, vol. 31, issue 1, 58-70

Abstract: Since the seminal paper by Rajan and Zingales in 2003, a plethora of studies have been motivated to establish whether the simultaneous opening of trade and capital borders leads to financial sector development. We test whether the simultaneous openness hypothesis is valid for Nigeria, with a focus on the banking sector and stock market. Using annual data from 1990 to 2015 and an instrumental variable regression estimation technique, we show that the simultaneous increase of trade and financial openness limits banking sector and stock market development. Thus, there is no empirical evidence to validate the simultaneous openness hypothesis in Nigeria. It also shows that trade openness is more beneficial for banking sector and stock market development in Nigeria than financial openness.

Date: 2019
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