Financial Sector Development and Macro-Economic Stability in Nigeria: A Long- Run Analysis

Henry Waleru Akani, Lucky Anyike Lucky and Kingsley Cheta Uzah

International Journal of Empirical Finance, 2016, vol. 5, issue 2, 112-128

Abstract: This paper examines the relationship between Nigeria financial sector development and macroeconomic stability from 1980 – 2014. The objective is to investigate the extent and the direction of relationship between various components of financial sector development and macroeconomic stability in Nigeria. Time series data were sourced from Central Bank of Nigeria (CBN) statistical bulletin. The study modeled percentage of Nigerian Gross Domestic Product to Balance of Payment (GDP/EXT) as our dependent variable total commercial banks credit to Gross Domestic Product (TCBC/GDP), Broad Money Supply to Gross Domestic Product (M2/GDP), Credit to Core Private Sector to Gross Domestic Product (CPS/GDP), Stock Market Capitalization to Gross Domestic Product (MKT/GDP) and Total savings to Gross Domestic Product (TS/GDP) as our independent variables. The study employed Co-integration Test, Augmented Dickey Fuller Unit Root Test, Granger Causality Test and Vector Error Correction Model were used to examine the extent to which the independent variables affect dependent variable. The static regression result shows that all the independent variables have positive effect on the dependent variables. The Augmented Dickey Fuller result shows non stationarity at level and stationarity at first difference. The cointegration result shows long run relationship, the Granger Causality Test shows multivariate relationship running through the independent to the dependent variable and the dependent to the independent variables. The vector error correction result shows adequate speed of adjustment to equilibrium. The study conclude that Nigerian financial sector development have significant relationship with macroeconomic stability. It therefore recommends effective financial system policies to deepen the development of the financial system to enhance Nigerian macroeconomic stability.

Keywords: Financial Sector Development; Macroeconomic Stability; Long-Run Relationship and Causality Test (search for similar items in EconPapers)
Date: 2016
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