FINANCIAL DEVELOPMENT, TRADE OPENNESS AND ECONOMIC GROWTH: EVIDENCE FROM NIGERIA

Abstract

This study investigates the effects of financial development and trade on economic growth in Nigeria. The analysis is based on Auto-Regressive Distributed Lags (ARDL) Bound test approach. The empirical results confirm the existence of a long-run cointegration between financial development (FD), trade openness and economic growth. This implies that there is long run relationship between the variables. The study further reveals that both FD and trade openness have positive and significant effects on economic growth, but the effects of FD is in the short run, while the effects of the trade openness is in the long run. It is evident that both the extent of financial activity and the degree of free trade are important for growth of the economy. Therefore, the study recommends that there is need to formulate sound policies that would promote FD and trade openness for sustainable economic growth. The paper improves on previous research on finance-growth nexus in Nigeria by explicitly recognizing the effects of trade